What are the federal employment tax rates and wage bases for 2007?
The three components of federal employment taxes include Social Security, Medicare, and FUTA.
Social Security: The effective tax rate is 12.4 percent of an employee's wages up to the 2007 Social Security wage base of $97,500. Both the employer and the employee are responsible for paying 6.2 percent of the Social Security employment tax up to the 2007 wage base. Example 1: For an employee with no prior wages who earns $1,000 during the payroll period, the Social Security withholding from gross pay will equal $62.00 ($1,000 x 6.2%) and the employer portion of Social Security employment tax will equal $62.00 ($1,000 x 6.2%) for a total combined tax due of $124.00. Example 2: For an employee with 2007 year-to-date wages of $96,900 who earns $1,000 during the payroll period, this employee will reach the 2007 Social Security wage base during the period. Therfore the amount subject to Social Security tax is reduced from $1,000 to $600 ($97,500 minus $96,900 equals $600), resulting in both an employee and employer Social Security tax of $37.20 ($600 x 6.2%).
Medicare: The effective tax rate is 2.9 percent of an employee's wages with no limit. Both the employee and employer are responsible for paying 1.45 percent of the Medicare employment tax. Example 1: For an employee with no prior wages who earns $1,000 during the payroll period, the Medicare withholding from gross pay will equal $14.5 ($1,000 x 1.45%) and the employer portion of Medicare employment tax will equal $14.50 ($1,000 x 1.45%) for a total combined tax due of $29.00. Example 2: For an employee with 2007 year-to-date wages of $96,900 who earns $1,000 during the payroll period, 100% of the current period earnings are subject to Medicare tax since there is no wage base. Therefore, the amount due the IRS in example 2 is the same as in example 1.
FUTA: The statutory tax rate is 6.2 percent of the employee's wages up to the 2007 wage base of $7,000, although most employers typically only pay an effective rate of 0.8 percent because employers receive a 5.4 percent credit for the state unemployment taxes they pay or are treated as paying. Example 1: For an employee with no prior wages who earns $1,000 during the payroll period, there is no FUTA withholding since FUTA is an employer only tax. The FUTA tax equals $8.00 ($1,000 x 0.8%). Example 2: For an employee with 2007 year-to-date wages of $6,900 who earns $1,000 during the payroll period, this employee will reach the 2007 FUTA wage base during the period. Therfore the amount subject to FUTA is reduced from $1,000 to $100 ($7,000 minus $6,900 equals $100), resulting in an employer only FUTA tax of $0.80 ($100 x 0.8%). The general rule is that for any employee who earns more than $7,000 during the year, an employer will owe $56.00 ($7,000 x 0.8%) in FUTA.