Does a company have to pay "payroll tax" to keep an employee on payroll?

Question

Is there such a tax? if yes, in what case should it be applied to the employees? And what is the percent? I heard it is 12% is this true?

Thanks so much!

Is there such a tax? if yes, in what case should it be applied to the employees? And what is the percent? I heard it is 12% is this true?

Thanks so much!

PS: Please elaborate more in your answer. Thanks!!!

Thanks to those very early answers. I would like to add more information to the question. The state here is California. So if I declare with the government that I will pay employee A x dollars/year, do I need to pay the payroll tax 12% (or what number) of x to the government in order to keep A in my payroll?

-- This is added after MukatA's answer. --

Many thanks to everyone for answering this question. This is what I understand:
When the employer issue a paycheck, the tax is already withheld based on employee's profile (declared in W-4). This is normal to all of us.
Then the employer must pay additional 6.2% (social tax) and 1.45% (medicare tax) is this correct? If the employer doesnt issue the check but pay cash (or any other way) instead, do they have to pay 6.2% and 1.45%?

What if the employee doesn't have Medicare? Does the employer need to pay that 1.45%?

In other words, if the employer would like to keep the employee's name in the payroll only (on paper), and will not pay or issue any paycheck for that employee, is there a cost for it? If yes, how much? Does the employer still need to pay anything for the government just to keep the employee's name in payroll?

Answer 1

Payroll taxes are a combination of taxes paid by the employer and employee.

First off are income tax withheld from the employees' pay. We are all familiar with that.

Then there are Social Security and Medicare taxes. These are split between the employer and employee. The employer and employee EACH pay 6.2% of wages up to $97,500 per year for Social Security and 1.45% of all wages for Medicare.

Next there are State and Federal unemployment taxes. The Federal unemployment tax is paid by employers. It may NOT be deducted from employees' pay. State unemployment taxes are normally paid by the employer alone although a few states to allow a partial split between the employer and employee.

Lastly there are a few states with mandatory State disability insurance, such as CA. This is split between the employer and employee in most cases.

Employers are required to make periodic payments of their payroll taxes to the various government entities. The frequency of these payments are generally based upon the volume of the employers' payroll and can range from weekly to quarterly.

Hope this explains things.

Addendum: Virtually all employees participate in Medicare. There are a few extremely rare exceptions and most employers never encounter them.

Payroll taxes are levied on the wages paid. If no wage is paid during a payroll period, there is no "tax" merely to keep the employee on the rolls.

Answer 2

The percentage of payroll tax depends on the state that you are in. There is a state tax and a federal tax. Some states do not have income tax at all, but most do.

If you do not want to have an "employee" on the payroll, then you do not classify them as an employee. You classify them as a "vendor." This means they give you an invoice (basically, a summary of hours and the amount they owe you written on a piece of paper), and you cut them a check without deducting taxes. You would then send them a 1099 at the end of the year and you can deduct that amount from your taxable income.

Now, just be careful with the vendor thing. Let them know that they are a vendor and that you will not be paying taxes...they need to pay their own taxes. Also, if they work solely for you, the government may classify them as employees for you and insist you begin deducting taxes. But, they will notify you ahead of time if this is the case.

Hope this helps.

Answer 3

I'm a little confused by your question - you talk about paying them cash, then talk about just wanting to keep them on the payroll.

If you pay cash, your legal obligations are the same as if you gave them a check. You withhold taxes that they owe, and also pay the employer taxes - that would be the matching amount for social security and medicare to the feds, and also unemployment comp payments to your state and most likely workers comp. Your payment to the feds for the employer taxes would be made along with the money you remit that was withheld from their pay. The amount to the state would be paid separately.

If the person doesn't have any income from you for the pay period, and you just want to keep them listed on your payroll system, then no taxes are due.

Answer 4

An employer deducts from the paycheck of an employee Social Security tax at 6.2% (of the first $97,500 in wages) for 2007 and the Medicare tax at 1.45% of all wages.
The employer also adds an equal amount. And, thus employer pays to IRS employment taxes at two times of (6.2% + 1.45%), which is 15.3%.

Answer 5

yes