Employee (EE) Taxes by Law:

Taxes are deducted from an Employee’s Gross Wages and Compensation for:
Social Security, Medicare, Federal Withholding, and State Withholding Taxes
These taxes are required for all types of income: tips, bonuses, commissions, benefits (insurance/housing/ski pass).
If you fail to deduct these taxes from an employee’s compensation you will violate IRS and State laws.*
How Employee taxes are calculated:
- Social Security/OASDI: is 6.2% of all wages up to $102,000 limit for 2008.
- Medicare is 1.45% of all wages with no limits.
- Federal Withholding (Fed W/H) is based on Tax Tables provided by the IRS every year. Using this and the
employee’s W4 we calculate taxes on a sliding scale that looks at Gross Pay.
- State Withholding (State W/H) like Fed W/H is based on Tax Tables provided by the State every year. Using this
and the employee’s W4 we calculate taxes on a sliding scale that looks at Gross Pay.
Example: You pay John Smith $1000.00 Gross Wages. This employee claims Single and 1 on his W4 and is paid
bi-weekly. As the employer you must deduct the following taxes:
EE Social Security/OASDI: $62.00
EE Medicare: $14.50
Fed W/H: $100.73
State W/H: $37.00
Total EE Taxes: $191.73
Net Pay for John Smith: $808.27
*(Some exceptions apply especially for J1 Visa holders, but as a GENERAL understanding of employee taxes these taxes are required.)

Employer (ER) Taxes by Law:

Employers pay taxes based on an Employee’s Gross Wages and Compensation. These taxes are:
Social Security, Medicare, Federal Unemployment (FUI), and State Unemployment (SUI).
These taxes are on top of the Gross Wages paid to each employee and are part of each payroll liability.**
How Employer Taxes are calculated:
- Social Security/OASDI: is 6.2% of all wages up to $102,000 limit per employee in 2008.
- Medicare is 1.45% of all wages with no limits.
- FUI is .8% of all wages up to $7000.00 limit paid per employee in each calendar year.
- SUI is a % of all wages up to $10,000.00 limit paid per employee in each calendar year. This rate changes each
year and will be given out in November; the beginner rate in Colorado is generally 2.52%.
Example: You pay John Smith $1000.00 Gross Wages. This employee has his employee deductions by law and
receives a Net check of $808.27. As the employer you must pay the following in taxes:
ER Social Security/OASDI: $62.00
ER Medicare: $14.50
ER FUI: $8.00
ER SUI: $25.20
Total ER Taxes: $109.70
Total Employer Liability for John Smith: $1109.70
**(Some exceptions apply especially for J1 Visa holders, but as a GENERAL understanding of employer taxes these taxes are required.)