If you’ve been in business for a while, you may be eligible for an Employer Refund.This is a refundable tax credit that most employers receive.
The ERC is a payroll tax refund that business owners can claim for up to the amount of federal employment taxes they paid on wages during their eligibility period. It is a great way for small and medium-sized businesses to get extra cash during the pandemic.
Payroll Taxes
Payroll taxes are the second-largest source of federal revenues. They support Social Security, Medicare and other social insurance programs.
Most Americans are subject to payroll taxes, which are automatically deducted from their paychecks. These taxes are also responsible for funding state-administered unemployment insurance programs.
Many small businesses outsource their payroll responsibilities to professionals because they can be complex and difficult to understand. Failure to comply with these requirements can lead to costly penalties for employers.
Employees must complete a federal Form W-4 to withhold the appropriate amount of federal income tax from their paychecks, and many must file a separate tax return for state income tax. Some employees are exempt from state income tax because they qualify for certain benefits, such as military spouses and full-time students who have no New York income tax liability in the previous taxable year and expect none in the current one.
Social Security Taxes
Social security taxes are paid by employers and employees to fund the Social Security system. Employers deduct these taxes from wages and deposit them to the Social Security Administration.
These taxes are also called FICA taxes. They are one of two federal payroll taxes.
There are certain conditions under which you can receive a refund of Social Security tax that was withheld incorrectly. This refund can be claimed on your annual tax return, a form called Form 1040.
Generally, you can claim this credit only if you were working more than one job and reached the Social Security wage base limit for that year.
However, this refund is rare and may only be available if your employer has made an error in withholding the tax. If this is the case, you can ask your employer to make an adjustment to the tax withheld.
Medicare Taxes
Medicare taxes are a required payroll deduction that provides health care to people with disabilities and seniors. The money you pay goes toward three areas of Medicare: hospital insurance, medical insurance and prescription drug coverage.
As of 2023, the Medicare tax rate is 2.9% of your yearly income. This is the same rate as Social Security taxes.
Regardless of your employment status, you must have these payroll taxes withheld from your paycheck. You can request a refund if your employer has withheld Medicare or Social Security taxes in error.
The Additional Medicare Tax was added as part of the Affordable Care Act, and it applies to a taxpayer’s cumulative wages, compensation and self-employment earnings above a certain threshold. If your cumulative earnings exceed this threshold, you owe an extra Medicare tax (0.9%) on top of the Medicare taxes you already pay.
Unemployment Insurance
Unemployment insurance, also called unemployment benefits, is a type of state-run program that pays money to eligible workers on a weekly basis when they lose their job and meet certain eligibility requirements. It’s primarily funded by specific payroll taxes collected by state governments.
During a recession, UI benefits can provide a much-needed cushion for workers who are forced out of their jobs. They can help reduce the number of people who dip into their savings or rack up credit card debt to make ends meet.
Business owners must pay a Federal unemployment tax (FUTA) and a State unemployment tax (SUTA). The amount they owe depends on the number of employees, the amount of wages paid to them in any given quarter of the year, and how many former workers claim UI benefits.
Employers that end reimbursable coverage must reimburse the UI trust fund for all UI benefits paid to their employees covered under the reimbursable program on a dollar-for-dollar basis. They must also file quarterly wage reports with UI and pay an administrative fund tax (AFT) of 0.08% of their TOTAL wages paid each quarter.