3.5 Federal, Georgia & Payroll Tax Administration

3.5 Federal, Georgia & Payroll Tax Administration

General contractors in Georgia operate under strict regulatory oversight governing employment taxes, sales and use tax on construction materials, worker classification, and federal/state labor standards. Failure to comply with tax withholding schedules, misclassifying construction craft labor as independent contractors, or violating wage-and-hour laws can result in severe financial penalties, stop-work orders, criminal sanctions, and disqualification from bidding on public works projects.

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1. Federal Employment Taxes & Reporting

Every contractor employing construction personnel must withhold federal taxes from employee paychecks and pay employer matching taxes under federal statutory schedules.

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|                       FEDERAL EMPLOYMENT TAX STRUCTURE & STATUTORY RATES                        |
|                                                                                                 |
|   TAX TYPE                 EMPLOYEE WITHHOLDING       EMPLOYER MATCHING        WAGE BASE LIMIT  |
|   -----------------------  -------------------------  -----------------------  ---------------  |
|   FICA: Social Security    6.20%                      6.20%                    Annual Cap       |
|   (OASDI)                                                                      (Indexed by IRS) |
|                                                                                                 |
|   FICA: Medicare           1.45%                      1.45%                    No Wage Base     |
|   (Hospital Insurance)                                                         Limit (All wages)|
|                                                                                                 |
|   Additional Medicare Tax  0.90% (Employer-paid wages   None (Employer match     Employer-paid wages  |
|                            exceed $200k)               not required)            $200k withholding trigger    |
|                                                                                                 |
|   FUTA: Federal            None (100% employer paid)  0.60% net effective      First $7,000 of  |
|   Unemployment                                        (6.0% gross - 5.4% max   wages per worker |
|                                                       state credit)            per calendar yr  |
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1. FICA (Federal Insurance Contributions Act)

• Social Security Tax (OASDI): Assessed at 6.2% for the employee and 6.2% for the employer (totaling 12.4%). This tax applies to gross wages up to the statutory wage base set annually by the Social Security Administration; use the current figure for the year at issue.
• Medicare Tax (Hospital Insurance): Assessed at 1.45% for the employee and 1.45% for the employer (totaling 2.9%). There is no wage cap; Medicare tax applies to all compensation paid.

• Additional Medicare Tax: Employers begin withholding the additional 0.9% when wages paid to an employee exceed $200,000 in the calendar year, without regard to filing status. The employee reconciles the filing-status threshold on the individual return; the employer does not match this additional tax.

2. FUTA (Federal Unemployment Tax Act)

• Statutory Gross Rate: 6.0% assessed on the first $7,000 of gross wages paid to each employee in a calendar year. FUTA is paid 100% by the employer; it is never deducted from employee wages.
• Maximum State Tax Credit: Employers who pay their Georgia State Unemployment Tax (SUTA) on time receive a maximum credit of 5.4% against the 6.0% gross FUTA rate.
• Net Effective FUTA Rate: 6.0% - 5.4% = 0.6%. This equates to a maximum annual federal unemployment tax burden of $42.00 per employee (0.006 * $7,000).

Federal Tax Reporting Forms & Deposit Schedules

• IRS Form 941 (Employer's Quarterly Federal Tax Return): Filed quarterly (due April 30, July 31, October 31, January 31) to report total employee wages, federal income tax withheld, employee FICA withheld, and employer FICA matching.
• IRS Form 940 (Employer's Annual Federal Unemployment Tax Return): Filed annually by January 31 to calculate and settle annual FUTA liabilities.
• Federal Tax Deposits: Contractors must deposit withheld income tax and FICA taxes electronically via the Electronic Federal Tax Payment System (EFTPS). Deposit schedules (Monthly or Semi-Weekly) are determined based on the employer's total tax liability during a four-quarter lookback period. If accumulated tax liability reaches $100,000 or more on any day, the deposit must be executed by the next business day.

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2. Georgia State Taxes for General Contractors

1. Georgia State Income Tax Withholding

• Contractors must withhold Georgia state income tax from employee wages based on employee withholding certificates (Form G-4).
• Withholding returns and payments are submitted electronically to the Georgia Department of Revenue (DOR) via the Georgia Tax Center (GTC) portal.

2. Georgia Sales and Use Tax for Contractors (O.C.G.A. § 48-8-63)

Sales and use tax on construction materials is a heavily audited area in Georgia general contracting.

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|                   GEORGIA SALES & USE TAX RULES FOR CONTRACTORS (O.C.G.A. § 48-8-63)  |
|                                                                                       |
|   THE "ULTIMATE CONSUMER" RULE:                                                       |
|   - General contractors and subcontractors are legally deemed the "ultimate           |
|     consumers" of all building materials, supplies, and fixtures incorporated        |
|     into real property.                                                               |
|                                                                                       |
|   POINT OF PURCHASE:                                                                  |
|   - Contractor MUST PAY Georgia sales tax to material suppliers at point of purchase  |
|   - If materials are bought from an out-of-state vendor without sales tax, the        |
|     contractor MUST ACCRUE AND REMIT USE TAX to the Georgia Department of Revenue.   |
|                                                                                       |
|   BILLING THE OWNER:                                                                  |
|   - Contractor DOES NOT CHARGE sales tax to the building owner on real property       |
|     construction contracts (Lump-Sum, GMP, or Cost-Plus). Sales tax is a direct job   |
|     cost built into the contract price.                                               |
|                                                                                       |
|   RESALE CERTIFICATES (FORM ST-5):                                                    |
|   - Contractors CANNOT use Resale Certificates (Form ST-5) to purchase materials      |
|     tax-free if the contractor will install or incorporate them into real property.   |
|                                                                                       |
|   TAX-EXEMPT OWNERS (GOVERNMENT / CHURCHES):                                          |
|   - Building for a tax-exempt entity does NOT exempt the contractor from sales tax on  |
|     purchased materials unless specific statutory agency purchasing rules apply.      |
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3. Georgia State Unemployment Tax (SUTA)

• Administered by the Georgia Department of Labor (GDOL) under O.C.G.A. Title 34, Chapter 8.
• Reported quarterly on Form DOL-4N (Employer's Quarterly Tax and Wage Report), due on the last day of the month following the end of each calendar quarter.
• SUTA tax rates are calculated based on an experience rating system reflecting the contractor's historical unemployment claims history. Higher turnover or frequent seasonal layoffs result in higher state unemployment tax rates.

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