Memorandum

To:

From:

RE:

In order to fulfill your request, I explain the types of taxes involved in determining the payroll and paying employer payroll taxes. The taxes involved in determining the payroll are: • FICA taxes. Congress, intended to provide workers with supplemental retirement, employment disability, and medical benefits, passed FICA. These benefits are financed by a tax levied on employees’ earnings. Congress sets the tax rate and tax base and both change intermittently. FICA tax rate is 7.65% on the first $110,100 of gross earnings. FICA taxes are withheld by the employer and then remitted to the government. These taxes are not an expense to the employer. FICA consists of Medicare and Social Security tax.

• Federal income taxes. Employers are required to withhold federal income taxes from employees each pay period. The amount depends on the employee’s gross earnings, the number of allowances claimed by the employee, and the length of the pay period. The employer remits to the

Payroll Taxes and Payroll Tax Expenses to Brownlee Company Mr. Jose J Sanchez Mr. Mike Falcon

government the amounts withheld. These taxes are not an expense to the employer.

• State and city income taxes. Most states and some cities require employers to withhold income taxes from employees’ earnings. As a rule, the amounts withheld are a percentage for the federal income tax.

The payroll taxes that are levied on employers and recognized as payroll tax expense are as follows: • FICA taxes. The employer matches each employee’s FICA contribution. This means the employer must remit to the federal government 12.4% of each employee’s first $110.100 of taxable earnings, plus 2.9% of each employee’s earnings regardless of amount. The employer’s tax is subject to the same rate and maximum earnings applicable to the employee. • Federal unemployment taxes. Provide benefits to employees who lose their jobs through no fault of their own for a limited period of time. The FUTA tax rate is 6.2% of taxable wage (first $7,000 of wages paid to each employee during a calendar year). The employer is allowed to a credit up to 5.4% on the federal rate for contributions to state unemployment taxes. • State unemployment taxes. Provide benefits to employees who lose their jobs through no fault of their own for a limited period of time. The basic rate is usually 5.4% on the first $7,000 of wages paid to an employee during the year. No matter the rate paid, the company’s credit on the federal unemployment tax is still 5.4%.

Very respectfully,