Taxes are an inevitable part of employment. All new employees must pay payroll tax, which includes a percentage of income withheld from an employee’s pay that’s paid to the government by an employer on an employee’s behalf.
Federal Income Tax Withholding
Employers withhold money from each employee’s paycheck to pay federal income taxes based on the information provided in their W-4. An employer does not pay any of the withholding tax but must collect and remit the withheld taxes.
Federal income tax withholding reports must be filed using Form W-2 with the IRS. Additionally, IRS Form 941 is due quarterly while IRS Form 940 is filed annually to report any unemployment taxes due.
State Income Tax Withholding, Social Security, and Medicare
In addition to federal income taxes, additional taxes are withheld from an employee’s paycheck for state income taxes. Use Form WH-4, Employee’s Withholding Tax Form for state taxes.
Social Security and Medicare taxes fall under the Federal Insurance Contributions Act (FICA). An employer pays half of FICA and the other half is deducted from an employee’s paycheck.
Employers also pay state and federal unemployment taxes based on a percentage of each employee’s salary. These taxes are known as State Unemployment Taxes (SUTA) and Federal Unemployment Taxes (FUTA).
Understanding Indiana’s WH-4 Form for State Tax Withholding
Indiana employers are required to withhold both state and county taxes from employees’ wages, generally. Employers have to register to withhold tax in Indiana and must have an Employer Identification Number issued by the federal government. Every employee is liable to pay part of Indiana’s state payroll taxes, which are charged at a flat rate of 3.23%. Additionally, employees also pay a county income tax, where every county has its allocated tax rate.
Overall, an employer is eligible to register for withholding tax if the business has:
- Employees
- Non-resident partners
- Non-resident shareholders
- Beneficiaries for income distributions
All Indiana employees must fill out the WH-4 Indiana state tax withholding form, titled Employee’s Withholding Exemption and County Status Certificate, which ensures that state income tax is accurately withheld from an employee’s pay. It also assists in determining the correct county income tax to withhold from employees’ wages by providing the correct tax rates for each of the 92 counties. The Indiana WH-4 form can be downloaded under the withholding tax form section of the Indiana Department of Revenue website.
Taxes, HR duties, payment processing, and other aspects of managing employees can be overwhelming. Here is a helpful guide to assist you in hiring a new employee.
