The Complete Federal Tax Guide for Employers

Americans spent an estimated 7.1 billion hours (roughly $316 billion in lost productivity) complying with IRS tax filing and reporting requirements for the 2024 tax year, or 13 hours per individual on average.

Employers and HR can help ease the tax burden for employees (and themselves) as they navigate the complexity of federal tax laws and maintain compliance.

In this guide, we’ll break down what federal tax is, federal tax exemptions and how to go about filing federal taxes as an HR professional.

What is federal income tax (FIT)?

Federal income tax (FIT) is a government tax on the money individuals and organizations earn each year. These can be derived from the annual earnings of individuals, businesses, trusts, and other legal entities. Not all earnings are subject to the federal income tax—only those that fall under the category of taxable income (both earned and unearned).

While taxable income amounts will vary due to filing status, all the following earnings are subject to federal income tax:

• Wages and salaries (including those from self-employment)
• Bonuses and cash gifts from employers
• Tips and commissions
• Unemployment benefits
• Canceled debts
• Business income
• Gambling income
• Capital gains

Who must pay federal income taxes?

US citizens and permanent residents working in the United States who earn more than a certain amount must pay FIT taxes. Additionally, all businesses (with few exceptions) pay federal income taxes, as do trusts and other legal entities.

Who is exempt from federal income tax?

Exempt means an individual or organization isn’t subject to federal income tax. To qualify for federal tax exemptions, a person must not have owed federal income tax in the previous tax year and must not be expected to owe federal income tax in the current year.

Certain organizations are exempt, and individuals (like certain international students, those with specific medical conditions, those with dependent children who qualify for the Earned Income Tax Credit and those whose sole income is Social Security) may have to pay less or no FIT.

What are the federal income tax brackets?

An individual’s income tax rate is dependent on the taxable income earned. For 2025, there are seven income tax brackets:

How to file federal income taxes

Filing federal income taxes is simple, but employees will need federal tax forms and receipts to prove the amount they have earned. For example:

• A W-2 form from each employer
• Any earning or interest statements—like 1099 forms or 1099-INT forms
• Receipts for any charitable donations, mortgage interest, state and local taxes, medical and business costs and more.

Employees will also need to select their filing status, which dictates how they would like to file their FIT taxes.

You can find out more information on filing federal income taxes here.

What is federal income tax withholding?

Federal tax withholding refers to income tax that is withheld from wages at the time of payment. It also refers to wages and benefits that are subject to federal income tax withholding.

How to calculate federal income tax withholding

Employment Taxes

Employers are required by law to withhold employment taxes from their employees’ paychecks. Employment taxes include Social Security and Medicare contributions.

The current tax rate for Social Security is 12.4%, which is paid half by the employee and half by the employer. The current tax rate for Medicare is 2.9%, which is also paid half by the employer and half by the employee. Self-employed individuals pay both the employee and employer portion of both taxes.

The wage base limit for Social Security (the maximum wage that’s subject to Social Security taxes in a year) is $176,100 for 2025. If an employee earns more than $200,000 in wages regardless of their filing status, employers are responsible for an additional 0.9% Medicare tax.

You can use the official IRS website to get an estimate of withholdings.

Other income tax withholding calculations

To calculate Federal Income Tax Withholding (FITW) from an employee’s pay other than employment taxes:

• Adjust their wage amount to account for other earnings like investments and dividends, which you’ll see on step 4 of their W-4 form.
• Adjust for any deductions they’re claiming outside of the standard deduction, which you’ll also find on their W-4 form.
• Take the adjusted wage amount and use the wage bracket tables from Form 15-T to find their withholding amount.
• Account for any tax credits to adjust that withholding amount, particularly for dependent children, and any extra withholding the employee has requested in their W-4 form.
• Tally the final withholding amount and divide it by the number of pay periods in a year to get the final withholding amount for each paycheck.

What is a federal tax deposit?

As an employer, one of your biggest responsibilities is to withhold taxes from your employees’ wages and deposit these funds to the IRS according to its requirements. This is called making a federal tax deposit.

What is a federal tax deposit obligation?

All your employees must pay a minimum amount in federal payroll taxes. The percentages may be different from one employee to the next, but the minimum amounts are specified in the Federal Insurance Contributions Act, or FICA. An employee’s federal tax deposit obligation includes their federal income, unemployment, Social Security, and Medicare taxes. It doesn’t matter whether the employee is part-time, full-time, or seasonal—they all must have a minimum amount withheld.

As an employer, you have a total federal tax deposit obligation, or total payroll tax liability. This is reported on IRS Form 941, which is due quarterly (by the last day of the month after the end of the quarter). However, you must make payroll tax deposits throughout the quarter, on a monthly or semi-monthly schedule.

The 4 methods for making federal tax deposits electronically

To submit your federal tax deposits electronically, you have four different options. They include:

1. The IRS’s [Electronic Federal Tax Payment System]. This can be done online or over the phone via the IRS voice response payment system.
2. ACH credit payments. You may ask your bank to set up ACH payments on your behalf.
3. Your accountant or payroll service. If you can trust them to make the payments for you by the due date, this is a good option. Just be aware you could face a steep penalty for missing a due date.
4. Under rare circumstances, you can ask your bank to wire same-day tax payments for you.

Federal tax deposit due dates

Your schedule for submitting federal tax deposits, covering income and FICA taxes, depends on the size of your employment tax obligation. Each year, the IRS notifies employers of their filing schedule and federal tax deadline, which may be annual, quarterly, monthly, or semi-weekly. Most businesses fall under the monthly or semi-weekly categories.

If you’re on a monthly schedule, your payment is due by the 15th of the following month. When the 15th lands on a weekend or federal holiday, the due date shifts to the next business day.

For semi-weekly depositors, payments are typically due within two to three days after payroll, depending on which day employees are paid. Always verify your exact schedule and current-year due dates with your accountant or the IRS, as requirements can vary from year to year.

What is the personal income tax (PIT)?

Personal income tax (PIT), also known as individual income tax, is a tax on employee earnings.

According to the IRS, earned income is money earned as an employee or as the owner of a business or firm. The list of taxable earned income to derive federal tax deductions includes the following:

• Wages, salaries, tips, and other taxable employee compensation
• Union strike benefits
• Disability retirement benefits received prior to minimum retirement age
• Net earnings from self-employment as a business owner, farm owner, minister, or statutory employee

Understanding how benefits interact with the personal income tax can help employers choose the best options to help employees balance their personal finances, retirement savings, and medical expenses.

Federal tax FAQs

What is a federal tax deposit coupon?

A federal tax deposit coupon is another term for IRS Form 8109. You can get Form 8109 through the IRS website or from your nearest tax office. But since this form accompanies a physical deposit of your federal payroll taxes (like a check) and applies only to companies meeting the small business exception, you may never have used one. Otherwise, you must submit your federal tax deposits electronically.

When are FIT taxes due?

For most US citizens, their tax return is due April 15th every year. With this in mind, the automatic extension date would be June 15th. If the due date lands on a weekend or legal holiday, it’s delayed until the next working day.

How does the US government spend federal income taxes?

The US government uses tax revenue, including federal income taxes, to fund programs and services, including (but not limited to):

• National defense
• Law enforcement
• Pensions and benefits for government workers
• Food and housing assistance programs
• Improvements in education, health, agriculture, and public transit
• Emergency disaster relief
• Interest on national debt

What is the difference between state vs. federal income tax?

State taxes pay for local services and programs, while FIT taxes pay for national initiatives.
State income tax rates vary by state.

As of 2025, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming don't have state income tax.

Which benefits reduce personal income tax?

Certain benefits deductions apply pre-tax, meaning they reduce an employee’s total taxable income. With less income subject to tax, increasing pre-tax income can lessen the amount employees pay in personal income tax.

Currently, employees can take advantage of pre-tax deductions on medical insurance premiums, contributions to retirement accounts, childcare expenses, and certain other business-related expenses.

See our glossary entry on pre-tax deductions for a full list of pre-tax deductions from personal income tax.

Which personal income tax forms should employers provide?

The two most common federal tax forms employers send to their employees are Form W-2 (Tax and Wage Statement) and Form 1095-C (Employer-Provided Health Insurance Offer and Coverage). Self-employed contractors generally receive Form 1099-MISC or Form 1099-NEC.