The Toll Road of Taxes
Payroll Taxes are the Tolls for Employment
Imagine your dental practice as a bustling highway with patients flowing in and out like cars on a busy thoroughfare. To provide the smoothest commute for patients, you need a great team, and to hire that team you will need to pay a toll.
In our scenario, payroll taxes are those tolls. They're the fees that both employees and employers must pay for the privilege of traveling down the road of employment. Every paycheck issued is like a ticket to ride on this employment highway, and a portion of that ticket price goes towards covering these tolls.
Just like on a real highway, payroll taxes help keep the road of employment running smoothly. They directly fund essential programs like Social Security, Medicare, and unemployment benefits. Unlike income taxes that fund the larger government budgets, payroll taxes are specially allocated to the related program.
As the employer, your practice acts as the toll booths on this employment highway. You are responsible for collecting the tolls from their employees' paychecks, making your employer contribution and ensure that those tolls are turned over to the government in a timely manner.
Just like on a real highway, there can be different toll rates depending on where you're traveling, as not only is there a federal toll to pay, but many states also have their own tolls to collect. Let’s look at some of the Federal tolls:
Social Security (SS) - This toll that supports the Social Security system. SS tax applies to the first $168,600 (as of 2024) in wages. After reaching that limit, you can travel toll-free as any wages above that inflation-adjusted amount are not subject to SS tax. The SS tax is the largest toll on the employment highway at 12.4%. That amount is split evenly between your employee at 6.2.% and your practice pays the other 6.2%.
Medicare (MC) - This toll supports the Federal Medicare program and is applied to every dollar earned on the employment highway. The base MC toll of 2.9% is also split evenly between the employee and your practice. In order to fund the ACA back in 2010, an additional toll of 0.9% on wages over $200,000 was put into effect and paid only by the employee.
Federal Unemployment (FUTA) - This toll supports the Federal Unemployment program and is only paid by your practice. It is a relatively small toll of 6% on the first $7,000 in wages. It can also be reduced down to 0.6% if you are paying unemployment taxes to your state.
State Payroll Taxes - The list of state and local tolls is too long and very specific to the state employment highway that you are trying to navigate. To find out more about your specific requirements, check out this Paylocity resource.
The combination of SS and MC tolls are referred to as FICA and are taken out on the first dollar of payroll earnings. When considering employment offers and budgeting, you need to consider 7.65% in FICA payroll taxes that your practice will be paying on every dollar of wages.
While navigating the toll roads of payroll taxes can seem daunting at first, with a little bit of know-how and a qualified professional acting as your chauffer, you'll be cruising down the employment highway in no time. So, buckle up and enjoy the view!
Since each practice is different, payroll tax management is specific to staffing and location.
If you are interested in having a knowledgeable and friendly driver (think London cabbie), please schedule a consultation with JNG Advisors today to find out about how we can get you to where you want to go while navigating the tolls of the employment highway.