Business owners who have employees on their payroll are legally required to submit federal and state payroll taxes to the government every quarter. Since these taxes can become rather costly over time, some entrepreneurs may be interested in learning how they can reduce their payroll tax burden while keeping their workforce intact. Here are three ways to cut payroll taxes without cutting payroll.

What are Payroll Taxes?

Payroll taxes are federal and state taxes that are levied on all employee wages. These taxes include FICA taxes, Social Security and Medicare deductions, FUTA taxes, which are used to fund federal unemployment payments, and SUTA taxes, which are used to fund state unemployment payments. The FICA tax percentage is 7.65 percent per employee (6.2 percent for Social Security and 1.45 percent for Medicaid). FUTA taxes are collected at a rate of 0.8 percent but are only applicable to the first $7,000 of gross income earned each year. SUTA tax rates vary by state, but are typically less than one percent.

Use an Accountable Plan to Reimburse Employee Expenses

One way to lower your payroll tax amount is to reimburse select employee expenses such as travel, entertainment and work-related supplies. In order to have these reimbursements exempted from gross income and payroll tax you'll have to use an accountable plan for the reimbursement. To qualify as an accountable plan the expenses must be related to the business and completely supported by documentation. Your employees will also have to return any extra reimbursement funds they received within 120 days.

Increase Employee Pay with Fringe Benefits

Another method to lower your payroll taxes is to give your workers fringe benefits that are exempt from payroll taxes. Such benefits include dependent care funds, group-term life insurance, education assistance and funds for moving expenses. Some of these benefits are subject to certain annual limitations so it's wise to check the federal guidelines before issuing them.

Divert Some Wages to Corporate Directors

If your business is incorporated you can use the directors' wages provision to issue wages that are also payroll tax-exempt. Since directors are not employees you won't have to remit payroll taxes on their income. Issue a reasonable amount of pay according to the time and travel involved in attending directors' meetings.

Despite some misconceptions there are legal ways to reduce your payroll tax liability. By using these three ways to cut payroll taxes you can lower your business tax bill without losing your employees.