Employer Taxes 101—FICA, FUTA, SUTA Decoded

Labor costs, which can be made up of wages, benefits, insurance, taxes, admin, and more, can account for up to 70 percent of your total business expenses. While many employers think there’s little they can do to reduce these costs, there are actually ways to take control. With this Real Cost Series, we put a magnifying glass on employer labor costs and break down powerful business strategies that can improve your bottom line without adding to your “to do” list.

If you’ve been following our Real Cost Series, you already know that wages are only part of the picture when it comes to tallying up the true cost of labor. Medical coverage and benefits, a variety of insurances, and administrative costs, all add to your bottom line.

And of course, employer taxes are a part of that equation as well.

Employer taxes have a variety of names. They’re often a mouthful to say so you’ve likely heard them referenced in their simplest forms: FICA, FUTA, and SUTA. But knowing what these federal and state taxes mean can be a confusing—and an expensive—alphabet soup. Which is why in this article, we’re unpacking these acronyms to help you digest the basics of these employer taxes.

What is FICA?

The first major type of employer tax is FICA, which stands for the Federal Insurance Contributions Act, and is a mandatory payroll tax.

This payroll or FICA tax is made up of two separate taxes that fund two large programs managed by the Federal Government: Social Security and Medicare. These programs provide supplemental income and health care for the disabled and elderly.

Social Security:

The Social Security part of the FICA tax is a flat rate of 12.4% and applies to the first $128,700 an employee earns in 2018. This tax provides monetary assistance to people who are retired, disabled, or unable to work, and is split equally between you and your employee. You will pay 6.2% of Social Security tax. You will also withhold 6.2% from the employee’s wages.

Medicare:

The smaller portion of the FICA tax goes to Medicare and is taxed at a flat rate of 2.9%. It’s also split between you and your employee as well. You will pay 1.45% and withhold 1.45% from your employee’s wages. This tax provides health insurance to people who are retired or disabled. While an employee’s taxable earnings are capped at a certain amount for the Social Security portion of the tax, there’s no cap for the Medicare portion.

What is FUTA and SUTA?

The second major type of employer tax that’s required for businesses are unemployment taxes. Like payroll taxes, unemployment taxes are made up of two separate components as well: FUTA and SUTA.

FUTA or “Federal Unemployment Tax Act”:

FUTA is a federal unemployment tax that’s imposed on employers and is used to fund unemployment insurance programs and job placement programs run by states. Although FUTA payroll tax is based on an employees’ wages, unlike FICA, this tax is paid only by employers.

So how much FUTA tax do you have to pay? The base FUTA tax rate is 6% of the first $7,000 of income for each employee. However, if pay your FUTA tax each quarter before it’s due, you can receive a tax credit of up to 5.4%.

SUTA or “State Unemployment Tax Act”:

Going hand in hand with federal unemployment taxes is SUTA, which is a state unemployment tax on employers. Also known as State Unemployment Insurance, or SUI, this tax is paid directly to the state to provide unemployment benefits to laid-off workers. Unlike FUTA, the rate you pay for state unemployment insurance will vary from employer to employer.


Pro-tip: Joining forces with a HR partner can actually lead to lower SUTA or SUI rates—this tax doesn’t have to be just another cost of doing business that you can’t control. 


In Hawaii, the rate starts at 2.4% for new businesses, but could change from year to year, based on a number of factors. In Hawaii, the maximum rate for SUTA is 5.6% of an employee’s taxable earnings. And only a portion of the employee’s income is taxable for SUTA—up to $45,900 for 2018.

There’s a Better Way to Manage Payroll Taxes

Accurate and timely payroll tax administration is critical to the good standing of your business.

But calculating and keeping up with the details of payroll processing and payroll tax administration can feel complicated and time consuming. Especially if you’re handling it yourself, or if you’re managing multiple vendors and experts for things beyond payroll, like health care, workers’ compensation, or year-end W-2 processing.

At ProService Hawaii, payroll processing and tax administration is second nature. You report wages and hours. We do the rest. Paying people on time? Easy. Calculating and filing payroll taxes? Simple.

Learn more about our payroll solutions here and how we can help manage your employer taxes, control your labor costs, and start the New Year off right. Visit https://info.proservice.com/guarantee for details.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. Please consult with your professional legal or tax adviser if you have questions about this content.

A Complete Checklist for Your Year-End Tasks

As the holidays quickly roll in, it is time to consider all the tasks on your payroll and HR  to-do list. This the season for surfing santas and sandmen, but also year-end paperwork too. Things like processing annual and holiday bonuses, rounding out 401(k) contributions, and informing employees about their FSA funds.

But end-of-year tax filing is probably the biggest task of them all. It’s a reporting requirement that applies to all employers, regardless of your size. And if you’re not careful about filing taxes correctly (or on time), you can face unexpected fines.

We know year-end paperwork and reporting can feel overwhelming. To help simplify your world, we’ve create a checklist of tax filings and deadlines to help you close out 2018 and prepare for a successful (and less stressful) 2019.

Year-End Tax Reporting:

One of your key responsibilities as an employer is to provide reports to both your employees and independent contractors showing how much they made in the previous year so they can properly fill out their own taxes. These are your W-2 and 1099-MISC forms.

You’ll also need to send this information to the IRS and Social Security Administration (SSA) for verification purposes (Form W-3 and 1096), as well as submit your unemployment taxes (Form 940), and your quarterly payroll tax report (Form 941).

All of this reporting is due by January 31, 2019—so the key is to start sooner rather than later. Here’s what you need to know:

Note: Forms that we can help you file are marked with an *

By December 2018:

🗹 Did your employees move this year? Ask them to verify their current mailing address, but also check that you have their correct legal name and social security number on file. 

🗹 Let employees know when they can expect to receive their W-2 forms and other tax related paperwork.

🗹 Gather and collect all the information you need in one place to begin filling out your end-of-year paperwork.

By January 31, 2019:

🗹 Provide W-2 Forms to Employees* | This is the form you send employees each year with information on their gross pay, Social Security and Medicare pay, federal and state income tax withholding, and tax-related deductions. Failure to submit these forms prior to the deadline can result in fines starting at $50/return, which can quickly add up.

🗹 Provide Form 1099-MISC to Independent Contractors | This form is for employers to report how much they’ve paid contractors in the past calendar year so contractors can report their income.

🗹 Submit Form W-3 (and copies of all W-2s) to Social Security Administration* Form W-3, officially known as “Transmittal of Wage and Tax Statements”, shows the total earnings, Social Security wages, Medicare wages, and withholding for all your employees in the previous year. Submit this transmittal form to the Social Security Administration, along with all W-2 forms.

🗹 Submit Form 1096 (and copies of all 1099s) to IRSForm 1096 is a transmittal form for 1099s that gets submitted to the Internal Revenue Service, along with all 1099 forms.

🗹 File Forms 940 to IRS (FUTA)* This form is used to report and pay your annual Federal Unemployment Tax Act (FUTA) tax to the IRS. Together with state unemployment tax systems, the FUTA tax provides funds for paying unemployment compensation to workers who have lost their jobs

🗹 Form 941 or 943 (Quarterly Tax Form)* Form 941 is used to report income taxes, Social Security tax, or Medicare tax withheld from employees paychecks and pay the employer's portion of these items. If you paid wages to one or more farm workers, use Form 943 instead. Both of these forms are required to be filed on a quarterly basis.

Affordable Care Act Reporting:

If you employ more than 50 full-time employees, the Affordable Care Act (ACA) requires you to offer your employees health insurance. And each year, if you’re one of those large employers, you must send Form 1094-C and 1095-C, also known as “Employer-Provided Health Insurance Offer and Coverage Insurance” to your employees and to the government.

By January 31, 2019:

🗹 Provide Form 1095-C to Employees*The 1095-C provides information about health insurance and is sent to both employees and the IRS. It details the coverage offered to the employee, the lowest-cost premium available to the employee, and the months of the year when the coverage was available.

By February 28, 2019 (by mail):

🗹 Submit Form 1094-C and 1095-C to IRS* | For 1094-C is simply a summary or cover sheet for 1095-C and must accompany Form 1095-C when it’s submitted to the IRS. All ACA forms come with severe late fines starting at $260/return. If you’re filing electronically, the deadline for Forms 1094-C and 1095-C is April 1, 2019.

Business Income Tax Reporting:

If you run your small business as a sole proprietorship, you’re allowed to report your business income and expenses on a Schedule C attachment to your personal income tax return. But if you’re a corporation then you must always prepare a separate corporate tax return on Form 1120, 1120-S or 1065 depending on your business. As you prepare your business income taxes, we encourage you to work with your CPA and legal counsel to determine the tax strategy that’s right for you.

By March 15, 2019:

🗹 Submit Form 1120-S to IRSThis is the income tax return form for a S Corporation specifically and is used to report income, gains, losses, deductions, and credits, etc. For this corporate tax form, it’s important to track deadlines, as they are unique to your tax year. And for each month the return is late, the IRS will impose a minimum penalty of $195/month, multiplied by the number of shareholders.

🗹 Submit Form 1065 to IRSIf your company is a Partnership—such as groups or joint ventures—this is the form you need to submit to report income, gains, losses, deductions, and credits. Generally, a Partnership must file Form 1065 by the 15th day of the third month following the date its tax year ended.

By April 15, 2019:

🗹 Submit Form 1120 to IRSLike the others, this form also serves to figure the income tax liability for a corporation, but for a C Corporation specifically. Generally, a C Corporation must file its income tax return by the 15th day of the fourth month after the end of its tax year. A corporation that doesn’t file its tax return by the due date, may be penalized 5% of the unpaid tax for each month the return is late, up to a maximum of 25% of the unpaid tax.

W-2s? Payroll Tax Admin? We Can Help!

When you started your own business, we’re assuming you didn’t have paperwork in mind. When you choose to handle HR yourself, you can face a lot of pressure from your employees and the government to file the right paperwork at the right time. Not to mention, it’s a lot to navigate on your own. If you’re a HR manager, think of the strategic projects you could focus on to grow your employees (and the business) if this administrative work wasn’t on your plate.

At ProService Hawaii, HR is our business. We can help you manage your W-2 processing and your payroll tax related paperwork, and in many cases, file it for you. And when you partner with us, you get the efficiency and cost savings of a much better system. 

Free up your time so you can put focus and passion back into your business.

Schedule a free HR consultation and learn how our HR services can power your business.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. Please consult with your professional legal or tax adviser if you have questions about this content.

What’s Trending for Women in Business

According to the National Association of Women Business Owners, women-owned businesses account for 31% of all privately-held firms in the United States. That number jumps a bit to 37.5% for women-owned firms in Hawaii, according to a recent census report. While there’s still a lot of work to do to close the gender-equality gap, it’s promising that the number of women in business continues to climb every year.

For employers and business leaders, it’s important to have an understanding of the current landscape in order to navigate the intersection of gender and career, and ultimately, to create a better work environment for women to succeed and thrive.

As we wrap up 2018 and look forward to 2019, here are three trends we see (and expect to continue seeing) as it relates to gender diversity and women in business:

1. Embracing diversity in the workplace

More and more companies today are embracing gender diversity in management and examining how their leadership composition reflects their culture and priorities. Why? Diversity in the workplace is legitimately good for business performance, as well as employee engagement. In fact, according to a study by Gallup, gender-diverse teams have better financial outcomes than those dominated by one gender.

And research continues to support the notion that women in leadership positions is a win-win for culture and employees. According to Pew Research Center, the majority of Americans say women are better than men when it comes to being compassionate and empathetic, as well as better at working out compromises and standing up for what they believe in. In addition, the study found 43% of Americans say women are better at creating a safe and respectful workplaces.


Related: Why Gender Diversity is Great in the Workplace


As men and women bring to the table different perspectives, ideas, and insights that contribute to overall business performance, we anticipate that the business benefits of gender diversity will be a continuing point of discussion into the New Year among managers and business leaders alike.

2. Better family leave policies

With unemployment in Hawaii at a low of 2.1% and the battle for top talent growing, local businesses can’t afford to loose high-performing employees if they want to stay competitive. And yet, 17% of women employees are leaving their jobs mid-career, according to LeanIn’s Women in the Workplace. According to another study by the Center for Work-Life Policy, “43% of highly qualified women with children are leaving careers or off-ramping for a period of time.”

And what’s the reason? For the majority of women surveyed, the reason for this off-ramp was to attend to responsibilities at home. During the middle part of a woman’s career, major life decisions start to have a bigger impact—whether it’s marriage, raising kids, caring for aging parents or pursuing continued education. Sally Blount, dean of Northwestern University’s Kellogg School of Management, calls this the “Mid-Career Marathon.”


Related: What Hawaii Business Owners Can Learn From Other Businesses’ Parental Leave Policies


As we’ve mentioned before, family leave policies can give companies a competitive advantage in not only attracting and hiring, but also with retaining top talent. And that couldn’t be more true for female candidates and employees. Whether it’s Netflix’s historic progress with parental leave, or the Bill & Melinda Gates Foundation’s policy of up to 52 weeks of paid time off for mothers and fathers, we expect to see companies continuing to improve their parental leave benefits and invest in programs that support employees with new children. This also includes gender neutral or primary caregiver policies to that reflect a commitment to families and women.

3. More workplace flexibility

By now, it’s commonly recognized that flexible work arrangements are linked to higher feelings of balance and job satisfaction for both men and women alike. However, this is increasingly true for women in particular. In fact, a recent study found that 67% of women who aren’t working by choice would likely go back to work if they had flexible hours.

For new or working mothers who have changing schedules and more responsibilities, we’re seeing the ask for flexible work schedules being made, as well as a continued effort by employers to make sure that flexible work arrangements are implemented successfully. From leveraging technology to establish good communication with employees working away from the office, to providing training to leaders on how to work with or better manage remote employees. But it’s up to leadership to fully understand and be transparent about official policies and how these policies are applied across the company.

Looking forward

With more and more companies embracing gender diversity, improving parental leave policies and supporting flexible work hours, it’s no surprise that these trends continue to grow on a mainstream level and impact the way that we think about and do work in Hawaii.

While there are a wide range of issues affecting women in the workplace, keeping a pulse on these three trends (and addressing them too) can help companies of all types evolve with the times and improve the way they attract, retain and manage women in business so that they succeed and thrive together.