EA Part 2 Payroll Taxes: FICA, FUTA, and Employer Deposit Requirements

Employment taxes are a practical, consistently tested domain on Part 2. Unlike some entity-specific topics that require deep theoretical knowledge, payroll tax questions reward candidates who know the exact rates, thresholds, forms, and deadlines. Get these numbers right and you bank straightforward points on exam day.

FICA: Social Security and Medicare Taxes

The Federal Insurance Contributions Act (FICA) imposes two taxes, each split equally between the employer and the employee:

Social Security Tax

• Rate: 6.2% employee + 6.2% employer = 12.4% combined
• Wage base: Applies only up to the Social Security wage base, which adjusts annually for inflation. For 2024 it was $168,600. Wages above the wage base are exempt from Social Security tax.

Medicare Tax

• Rate: 1.45% employee + 1.45% employer = 2.9% combined
• No wage base cap: Medicare tax applies to all covered wages without limit.

Additional Medicare Tax

• Rate: 0.9% — employee's share only, no employer match
• Threshold: Applies to wages exceeding $200,000 per year from a single employer. Employers must withhold the additional 0.9% once wages to an individual exceed $200,000, regardless of the employee's other income or filing status. The final reconciliation happens on the employee's Form 1040.

Self-employed individuals pay the combined employee and employer FICA rates (15.3% on earnings up to the SS wage base, plus 2.9% on all earnings, plus 0.9% additional Medicare above the threshold) as self-employment tax, but deduct half as an above-the-line deduction.

FUTA: Federal Unemployment Tax

The Federal Unemployment Tax Act (FUTA) is an employer-only tax:

• Rate: 6% on the first $7,000 of wages paid to each employee per year
• State unemployment credit: Employers who pay state unemployment insurance (SUI) on time receive a credit of up to 5.4%, reducing the effective FUTA rate to 0.6% for employers in compliant states
• Maximum FUTA per employee: $7,000 × 0.6% = $42 per employee per year (assuming full state credit)

Employers in states that have not repaid federal unemployment loans (credit reduction states) lose part of their 5.4% credit, increasing the effective FUTA rate above 0.6% for those states. The IRS publishes the list of credit reduction states annually.

FUTA is reported annually on Form 940. Unlike FICA, there is no employee share.

Employer Deposit Requirements

Employers do not remit employment taxes with each payroll. Instead, they deposit payroll taxes using IRS-established schedules based on a lookback period.

Lookback Period

The lookback period is the 12-month period ending June 30 of the prior year. Total employment tax reported in the lookback period determines the deposit schedule:

• Monthly depositor: Total tax for the lookback period was $50,000 or less. Deposits are due by the 15th of the following month.
• Semiweekly depositor: Total tax for the lookback period exceeded $50,000. Payrolls paid on Wednesday, Thursday, or Friday require deposits by the following Wednesday. Payrolls paid on Saturday, Sunday, Monday, or Tuesday require deposits by the following Friday.

New employers (with no lookback period history) default to monthly depositor status.

The $100,000 next-day rule overrides both schedules: whenever a deposit obligation reaches $100,000 on any day, the employer must deposit by the next business day, regardless of their regular deposit schedule. After triggering this rule, the employer automatically becomes a semiweekly depositor for the remainder of the year and the following calendar year.

Penalties for Late Deposits

Penalties scale with how late the deposit is:

• 1–5 days late: 2%
• 6–15 days late: 5%
• More than 15 days late: 10%
• More than 10 days after notice/demand: 15%

Trust Fund Recovery Penalty

The "trust fund" portion of employment taxes consists of withheld employee income taxes and the employee's share of FICA. Because this money was withheld from employees' paychecks and held in trust for the IRS, failing to remit it is treated especially harshly.

The trust fund recovery penalty (TFRP) equals 100% of the unpaid trust fund taxes and is assessed personally against any "responsible person" who willfully failed to collect or pay the taxes. Responsible persons can include owners, officers, directors, employees with check-signing authority, and third-party payroll providers with relevant authority.

"Willful" means the person knew about the unpaid taxes and either intentionally disregarded the obligation or was plainly indifferent to it — choosing to pay other creditors before the IRS qualifies as willful. Multiple responsible persons can be assessed the same 100% penalty.

Form 941 vs. Form 944

• Form 941 (Employer's Quarterly Federal Tax Return): Filed quarterly by most employers to report FICA taxes and withheld income taxes. Due dates are April 30, July 31, October 31, and January 31.
• Form 944 (Employer's Annual Federal Tax Return): Available only to small employers whose total annual employment tax liability is $1,000 or less. The IRS notifies eligible employers; they cannot self-elect. Form 944 consolidates four quarterly filings into one annual return due January 31.

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