Publication 583 - Employment Taxes
This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and
other forms that must be filed when you have employees.
Employment taxes include the following.
- Social security and Medicare taxes.
- Federal income tax withholding.
- Federal unemployment (FUTA) tax.
If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. If you have
agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. These publications
explain your tax responsibilities as an employer.
If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's
Supplemental Tax Guide. That publication has information to help you determine whether an individual is an
employee or an independent contractor. If you classify an employee as an independent contractor, you can be
held liable for employment taxes for that worker plus a penalty. An independent contractor is someone who is
self-employed. Generally, you do not have to withhold or pay any taxes on payments to an independent contractor.
Federal Income, Social Security, and Medicare Taxes
You generally must withhold federal income tax from your employee's wages. To figure how much federal income
tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees)
and the methods described in Publication 15.
Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal
Insurance Contributions Act (FICA). Social security tax pays for benefits under the old-age, survivors, and disability
insurance part of FICA. Medicare tax pays for benefits under the hospital insurance part of FICA. You withhold part
of these taxes from your employee's wages and you pay a matching amount yourself. To find out how much social
security and Medicare tax to withhold and to pay, see Publication 15.
Which form do I file? Report these taxes on Form 941, Employer's Quarterly Federal Tax Return. (Farm
employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees.)
Federal Unemployment (FUTA) Tax
The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act
(FUTA) that pays unemployment compensation to workers who lose their jobs. You report and pay FUTA tax
separately from social security and Medicare taxes and withheld income tax. You pay FUTA tax only from your own
funds. Employees do not pay this tax or have it withheld from their pay.
Which form do I file? Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment
(FUTA) Tax Return. See Publication 15 to find out if you can use this form.
Have the employees you hire fill out Form I-9 and Form W-4. If your employees qualify for and want to receive
advanced earned income credit payments, they must give you a completed Form W-5.
Form I-9. You must verify that each new employee is legally eligible to work in the United States. Both you and the
employee must complete the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility
Verification. You can get the form from USCIS offices or from the USCIS website at www.uscis.gov. Call the USCIS
at 1-800-375-5283 for more information about your responsibilities.
Form W-4. Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. You will use the
filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your
employee's wages, see Publication 15.
Employees claiming more than 10 withholding allowances. An employee who claims more than 10 withholding
allowances for wages paid in 2007 can use several methods of withholding. See section 16 of Publication 15.
Form W-5. An eligible employee who has a qualifying child is entitled to receive advance earned income credit
(EIC) payments with his or her pay during the year. To get these payments, the employee must give you a properly
completed Form W-5, Earned Income Credit Advance Payment Certificate. You are required to make advance EIC
payments to employees who give you a completed and signed Form W-5. For more information, see Publication 15.
Form W-2 Wage Reporting
After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee
to whom you paid wages during the year. You must also send copies to the Social Security Administration. See
Information Returns, later, for more information on Form W-2.
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