Employment taxes

Employers are responsible for several federal, state, and local employment taxes. At the federal level, these include:

  1. income tax,
  2. Social security and medicare taxes, and
  3. unemployment taxes.

Requirements for employers include withholding, depositing, reporting, and paying employment taxes. There are forms that employers must give to employees, those that employees must give to employers, and those that employers must send to the Internal Revenue Service (IRS) and Social Security Administration (SSA).

Income tax

Wages subject to federal employment taxes include all pay given to an employee for services performed. The pay may be in cash or in other forms. It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. It does not matter how the payments are measured or made.

To know how much income tax to withhold from employees’ wages, the employer should have a Form W-4, Employee’s Withholding Allowance Certificate, on file for each employee.

Social Security and Medicare

The Federal Insurance Contributions Act (FICA) provides for a federal system of old-age, survivors, disability, and hospital insurance. The old-age, survivors, and disability insurance part is financed by the Social Security tax. The hospital insurance part is financed by the Medicare tax. Each of these taxes is reported separately.

Generally, employers are required to withhold Social Security and Medicare taxes from employees’ wages and must also pay a matching amount of these taxes. Certain types of wages and compensation are not subject to Social Security taxes. Generally, employee wages are subject to Social Security and Medicare taxes regardless of the employee’s age or whether he or she is receiving Social Security benefits.

Special forms are needed to be filed with the Internal Revenue Service (IRS), a branch of the U.S. Department of Treasury, as well as with the Illinois Department of Revenue. The forms are available in post offices, public libraries, online at, or you can order them to be mailed to you at 1-800-TAX-1040.