Businesses with employees have federal tax obligations besides income tax. The Internal Revenue Code (IRC) makes both employers and employees responsible for paying employment taxes, but the responsibility for transmitting those tax payments to the IRS belongs solely to the employer. If an employer fails to pay employment taxes or file an employment tax return, the IRC authorizes the government to create a return for the employer and assess the amount of tax due. The IRS has created a program that allows automated creation of missing returns, but the program is reportedly understaffed and lacking in other resources. A recent audit by the Treasury Inspector General for Tax Administration (TIGTA) found that these deficiencies in the program caused the IRS to miss billions of dollars in employment tax assessments.
What Are Employment Taxes?
The Federal Insurance Contributions Act (FICA) requires both employees and employers to pay the following employment taxes:
– 6.2 percent of the employee’s wages for “old-age, survivors, and disability insurance,” also known as Social Security; and
– 1.45 percent of the employee’s wages for “hospital insurance,” or Medicare.
The Social Security Administration (SSA) sets a cap on the amount of earnings subject to the 6.2 percent Social Security tax. As of the end of 2018, the cap is set at $132,900. There is no cap on earnings subject to the 1.45 percent Medicare tax.