APA's Top Payroll Questions & Answers for 2020 - 28

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APA's Top Payroll Questions & Answers for 2020

Employment tax exemption for retirees' wages

Taxable and Nontaxable Compensation

Q.

Our company is about to hire two retirees, which will be our first hire
of retired persons. My question is whether or not they are exempt from
employment taxes. Thank you for your help in advance.

A.

No, these employees would not be exempt. Employment taxes include
social security and Medicare tax, unemployment tax required by the
Federal Unemployment Tax Act (FUTA), federal income tax, state
income taxes, and other state and local taxes. This answer focuses on
federal employment taxes.
Your new hires are not exempt from social security and Medicare
tax. The fact that they may be retired or even receiving social security
payments does not excuse them from liability for the employee share
of social security and Medicare tax. Also, the mere fact of their retiree
status does not excuse your company from paying the employer share
of social security and Medicare taxes for them.
FUTA tax must be withheld by most employers (see The Payroll
Source®, §7.1-1), on most types of wages (see The Payroll Source®,
§7.1-2), and on most types of employment (see The Payroll Source®,
§7.1-3). It's therefore likely that you are a covered employer the
payments to these employees are subject to FUTA tax. The initial FUTA
tax is 6.0% of the first $7,000 of an employee's wage, but the tax can be
offset with a credit against for state unemployment tax paid in full and
on time.
With regard to federal income tax, you will withhold based on the
filing status and other relevant information entered on their Form W-4.
You would not withhold federal income tax from the retirees' wages
if they file a Form W-4 claiming exempt from federal income tax
withholding.
Most states have their own income tax and have their own
withholding form that corresponds to the federal Form W-4. You would
withhold state income tax according the withholding form completed
by the employee. Many local governments also have their own income
taxes on employee income or other types of taxes levied on employers.

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APA's Top Payroll Questions & Answers for 2020

Table of Contents for the Digital Edition of APA's Top Payroll Questions & Answers for 2020

Table of Contents
APA's Top Payroll Questions & Answers for 2020 - Intro
APA's Top Payroll Questions & Answers for 2020 - Cover1
APA's Top Payroll Questions & Answers for 2020 - a
APA's Top Payroll Questions & Answers for 2020 - b
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APA's Top Payroll Questions & Answers for 2020 - Table of Contents
APA's Top Payroll Questions & Answers for 2020 - e
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