Explaining payroll taxes to your employees isn’t always easy—especially when the tax system itself feels like a maze. As a small business owner, you wear many hats, and navigating tax lingo might not be your strongest suit. That’s where Beyond comes in.
We’re here to break down complex terms into simple language, so you can better understand what’s on your team’s paychecks and what those numbers really mean.
What Exactly Are Payroll Taxes?
Ever looked at a paycheck and thought, “Where did all my earnings go?” You’re not alone.
Payroll taxes are amounts withheld from employees’ wages to cover federal programs like Social Security and Medicare, based on information provided on the employee’s W-4 form. These taxes are mandatory and support programs that many Americans rely on in retirement or during times of need.
Payroll taxes began as part of the Social Security Act in 1935, and have evolved significantly since then. Medicare followed in 1965, expanding the system of mandatory contributions.
To put it in perspective:
- In 2022, Social Security taxes applied to the first $147,000 in income.
- In 2023, the cap increased to $160,200.
Your employees’ pay stubs will usually show gross wages (pre-tax pay), net wages (take-home pay after deductions), and amounts withheld for various taxes.
Understanding the Basics: W-4, FICA, and More
Let’s look at some key terms:
- W-4 Form: Determines how much federal income tax is withheld from an employee’s paycheck. Factors like deductions and credits can reduce the amount owed.
- FICA Taxes: Required by the Federal Insurance Contributions Act, FICA funds Social Security and Medicare. Some pay stubs show FICA as a total; others separate it into each program.
Social Security Tax
This tax helps fund the Social Security benefits that employees will receive during retirement.
- Rate: 6.2% of gross wages
- Paid by: Both employee and employer
- Wage limit (2023): $160,200 – no tax is collected above that amount
Many mistakenly believe full retirement age is 65. In reality, if you were born in 1960 or later, it’s 67.
Medicare Tax
Medicare supports healthcare for people aged 65+ and some younger individuals with disabilities.
- Rate: 1.45% of gross wages
- Paid by: Both employee and employer
- No income cap: Tax applies to all wages, regardless of total income
FUTA & SUTA: Employer-Paid Unemployment Taxes
- FUTA: Federal Unemployment Tax Act
- SUTA: State Unemployment Tax Act
These taxes fund unemployment benefits and are only paid by employers. If your business has employees across multiple states, you’ll need to register and report accordingly in each state.
Helpful resources include IRS Publication 15 and 15-A, which outline federal requirements.
State and Local Taxes
Tax responsibilities don’t end with the federal government. Depending on where your employees work (not necessarily where your business is located), you may need to withhold state and even local taxes—like municipal or transit taxes.
Some states have no income tax, but still require other deductions.
Need help registering in a new state? Beyond partners with CorpNet to assist with registration for payroll tax compliance in every state where your employees operate.
How Beyond Simplifies Payroll and Tax Filing
We know taxes can be intimidating, but that’s why we built Beyond Payroll—to take the guesswork out of the process.
With Beyond, you get:
- Automated tax calculations and filings (quarterly and annual)
- Support for both W-2 and 1099 employees
- Flexible payment options: direct deposit, physical checks, or payroll debit cards
- Compliance tools to help avoid penalties and streamline reporting
And through our employee self-onboarding, tax forms like the W-4 and state-specific documents are filled out digitally—saving you time and paper, and reducing errors.
Ready to Simplify Your Payroll?
You don’t need to be a tax expert to run your business smoothly. With Beyond, you gain tools that automate tedious processes and give your team confidence in their pay and deductions.
Let us help you make tax season—and every pay period—a little easier.
👉 Get started with Beyond today.
