The general makeup of employee paychecks, outside of wages, are federal income taxes, Social Security, and Medicare expenses. One of those, Social Security payroll taxes, is increasing by almost 3.6% to $142,800 in 2021.

What does this mean for you as an employer? Compared to 2020, an increase of $5,100 in Social Security payroll taxes and a big headache. But there’s more to it than that.

What kind of payroll medicine do you need to cure it? What about five tips to get you through 2021 taxes?

Keep reading for expert help to get you through payroll tax changes in 2021.

1. How to Remit and File Payroll in 2021

First, there are two things that must be reported.

• Tax withholdings and earnings of each employee’s quarterly earnings on Local, State, and Federal returns
• Total employee withholding amounts on an annual level

New W-4s are required for employees hired on or after January 1, 2021. This includes those who want to change their filing status.

Lastly, you have the taxes must be deposited in an authorized bank or financial institution on time and in full. Reporting and submitting the required paperwork is great, but it doesn’t mean anything if the payment is late or lacking.

2. Payroll Tax Changes: Who’s Paying What?

This question has a pretty straightforward answer.

For employer payroll taxes, you’ll be expected to pay your federal unemployment taxes, as well as state unemployment taxes. Medicare and Social Security taxes also must be paid.

In the case of Employee payroll taxes, rather than unemployment taxes they pay on income. That comes out to federal income tax, state income tax, and local income tax. Social security and medicare are paid as well, just like employers pay.

3. How Much Does Each Party Pay?

It’s all well and good to know who’s paying what, but a bigger question might be how much? We’ve broken it down for you here.

Social Security is split between employer and employee equally, with each sharing half of the financial burden. It comes out to 6.2% of each paycheck for each party, to a total of 12.4%. The cap on Social Security is $142,800 as we mentioned before. There are some instances where you’ll have to pay taxes on Social Security as an individual getting benefits as well.

Medicare is also split between employer and employee, each paying 1.45% of gross wages, for a total of 2.9%. There’s no cap on Medicare in the amount that goes into the trust fund that pays those costs. We should also note that after wages exceed $200,000, Medicare increases to a 2.35% tax for the employee.

State Unemployment taxes pays for unemployment benefits to state workers. The law of each state determines the tax rates, so it’s variable from year to year and state to state. Some states even charge employees unemployment tax, so it’s important to know and verify.

Federal Unemployment taxes cover the administration costs of Unemployment Insurance and Job Service programs in federal jurisdiction, as well as pay for those benefits. Employers receive a credit of 5.4% against their 6% taxation rate when their unemployment taxes are paid on time. The cap for this tax is $7,000.

4. How the New W-4 Impacts Your Payroll Tax

The new W-4 has a lot of influence over your payroll tax and how you go about doing them. A few points are:

• It isn’t mandatory to update old legacy W-4 forms
• Many states have made changes to withholding systems in response to federal changes
• The Tax Cuts and Jobs Act changes reflect in the new form with the elimination of personal and dependency exemptions
• Tries to match withholding amounts to actual tax liability more accurately
• Is required for any current employees who wish to change their withholding status and any employees hired on or after January 1, 2021

It’s a mouthful, but those are the five biggest changes to the new W-4. It can be confusing at first, in particular with the elimination of personal and dependency exemptions.

5. PEO Services Help With Payroll Taxes

How can a PEO or Professional Employer Organization help you with these payroll tax changes in 2021?

PEOs assume the responsibility for federal, state, and local tax filings, so you can rest easy. They automate payroll tax deductions, freeing you up for the most important thing — running your business.

They remit the correct amount to the different tax agencies on time and in full, based on the latest tax regulations. They also create, distribute, and file employee W-2 and 1099 forms as needed for the correct type of employee correctly and on time.

Intrepid Payroll is here to find and match you with the right PEO for you! Check out what we have to offer by contacting us today!