10.2 Payroll, Employment Taxes & Worker Classification

Alabama HVAC Contractor License Exam

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1 Alabama HACR Laws, Rules & Licensing

1.1 Alabama HACR Board Authority, Licensing Pathways & Experience Requirements 1.2 Contractor Bonding, Insurance, Fees & Annual Renewal 1.3 Permits, Local Jurisdictions, Inspections & Disciplinary Actions

2 Contractor Business, Contracts, Estimating & Alabama Lien Law

2.1 Business Organization, Risk Management & Project Administration 2.2 Construction Contracts, Change Orders & Warranties 2.3 Alabama Mechanics' Lien Law & Financial Management 2.4 Construction Estimating, Markup & Bid Preparation 2.5 Project Management, Scheduling & Field Supervision 2.6 Risk Management, Contractor Insurance & Surety Bonds

3 Safety Standards, OSHA & EPA Section 608

3.1 OSHA Construction Safety (29 CFR 1926) for HVAC Contractors 3.2 EPA Section 608 Refrigerant Regulations & Recovery Requirements 3.3 Refrigerant Management, Leak Repair Rules & A2L Transition

4 General Technical Knowledge & Thermodynamics

4.1 Principles of Heat Transfer, Temperature & Pressure 4.2 The Mechanical Refrigeration Cycle & Refrigerant Properties 4.3 Psychrometrics & Air Properties for Humid Climates 4.4 Basic Electricity, Ohm's Law & Electrical Power for HVAC

5 Piping Systems, Refrigerant Lines & Fuel Gas Piping

5.1 Refrigerant Piping Sizing, Materials & Installation 5.2 Fuel Gas Piping Sizing & Installation (IRC Chapter 24) 5.3 Condensate Drain Systems & Trapping

6 System Sizing & ACCA Manual J Load Calculations

6.1 ACCA Manual J Fundamentals & Design Conditions 6.2 Envelope Loads: Conduction, Radiation & Fenestration 6.3 Infiltration, Ventilation & Internal Heat Gains

7 Duct System Design & ACCA Manual D

7.1 Airflow Principles, Static Pressure & Fan Performance 7.2 ACCA Manual D Duct Sizing & Friction Rate 7.3 Duct Materials, Installation Standards & Air Distribution

8 Heating & Cooling Equipment Operation

8.1 Heat Pump Systems & Supplemental Heating 8.2 Gas Furnaces & Combustion Systems 8.3 Air Conditioning Units, Compressors & Metering Devices

9 Mechanical Codes, Electrical Applications & Maintenance Diagnostics

9.1 Combustion Air & Venting Systems (IRC Chapter 24) 9.2 Electrical Applications for HVAC (NFPA 70 / NEC Article 440) 9.3 Preventative Maintenance, Troubleshooting & Plan Reading

10 Employment Law, Payroll Taxes & Contractor Finance

10.1 Federal & Alabama Labor Laws for HVAC Employers 10.2 Payroll, Employment Taxes & Worker Classification 10.3 Job Costing, Break-Even Analysis & Cash Flow Forecasting

11 Preventative Maintenance, Service Procedures & Commissioning

11.1 Preventative Maintenance Programs & Service Agreements 11.2 Filter, Coil & Drain Maintenance for Alabama's Humid Climate 11.3 Evacuation, Dehydration & Refrigerant Charging Procedures 11.4 Airflow Verification, Static Pressure Testing & Commissioning

12 Electrical Applications & Construction Documents

12.1 Electric Motors, Compressors & Motor Protection 12.2 Transformers, Control Circuits & Low-Voltage Wiring 12.3 Branch Circuits, Conductors, Grounding & Disconnects 12.4 Construction Documents, Specifications & Submittals

10.2 Payroll, Employment Taxes & Worker Classification

Key Takeaways Explain This Topic AI

The employer share of FICA is 7.65 percent - 6.2 percent Social Security up to the 2026 wage base of $184,500 plus 1.45 percent Medicare on all wages with no cap.

The additional 0.9 percent Medicare tax on wages above $200,000 is withheld from the employee only; the employer does not match it.

FUTA is 6.0 percent on the first $7,000 of each employee's wages, reduced by a credit of up to 5.4 percent for timely state unemployment payments, giving most Alabama employers a net 0.6 percent, or $42 per employee per year.

Alabama's state unemployment taxable wage base is $8,000 for 2026, and Alabama income tax is withheld using employee Form A-4 and remitted on Form A-1 or A-6.

Form 941 is filed quarterly, Form 940 annually, and Forms W-2 and W-3 are due to employees and the Social Security Administration by January 31.

Last updated: September 2026

10.2 Payroll, Employment Taxes & Worker Classification

Note

Payroll and Employment Taxes is its own scored subject area on the Alabama HAC blueprint. Expect straightforward computation and due-date questions: who pays which tax, what percentage, on what wage base, and which form reports it.

Step 1: The New-Hire Paperwork Chain

Document Purpose Deadline
Form W-4 Employee federal withholding election Before the first payroll
Alabama Form A-4 State withholding exemption certificate Before the first payroll

Form I-9 Federal employment eligibility verification Section 1 by day one; Section 2 within three business days

E-Verify case Alabama Section 31-13-15 requirement for every employer Normally within three business days of the start date

State new-hire report Child-support and benefit-integrity reporting Within seven days of hire

I-9 records are retained for three years after the hire date or one year after termination, whichever is later .

Step 2: The Taxes Themselves
FICA - Social Security and Medicare

Component Employee rate Employer rate 2026 wage base
Social Security (OASDI) 6.2% 6.2% $184,500
Medicare (HI) 1.45% 1.45% No limit
Additional Medicare 0.9% on wages over $200,000 No employer match No limit

The combined employer share on ordinary wages is therefore 7.65 percent , and the employer withholds a matching 7.65 percent from the employee. Once an employee passes the Social Security wage base within a calendar year, the 6.2 percent stops for both parties but the 1.45 percent Medicare continues on every dollar.

FUTA - Federal Unemployment

Rate: 6.0 percent on the first $7,000 of each employee's annual wages.

Credit: up to 5.4 percent for timely payment of state unemployment contributions.

Effective rate for a compliant Alabama employer: 0.6 percent , a maximum of $42 per employee per year .

FUTA is an employer-only tax. Nothing is withheld from the employee.

If a state carries an unrepaid federal unemployment loan past the federal deadline, the credit is reduced and employers in that state pay more.

Alabama Unemployment (SUTA)

Taxable wage base for 2026: $8,000 per employee.

The contribution rate is experience-rated - new employers pay a standard rate, and the rate then rises or falls with the employer's benefit-charge history. Every layoff that generates benefit charges raises the rate for years.

SUTA is an employer-only tax in Alabama; nothing is withheld from the employee.

Alabama Income Tax Withholding

Withheld using the employee's Form A-4 election and the Alabama Department of Revenue withholding tables.

Remitted monthly or quarterly on Form A-1 (quarterly) or Form A-6 (monthly), with an annual reconciliation on Form A-3 accompanied by state copies of the W-2s.

Step 3: Deposits and Returns

Obligation Form Frequency / due date

Federal income tax withheld plus both FICA shares Deposited by EFTPS Monthly or semiweekly , determined by the lookback period

Quarterly federal payroll return Form 941 Last day of the month after each quarter ends
Annual federal unemployment return Form 940 January 31
Employee wage statements Form W-2 to employees, W-3 transmittal to SSA January 31
Nonemployee compensation Form 1099-NEC January 31

A monthly depositor remits by the 15th of the following month. A semiweekly depositor remits on Wednesday for Wednesday-through-Friday paydays and on Friday for Saturday-through-Tuesday paydays. Deposit status is set by the total tax reported during a four-quarter lookback period, not by company size.

Warning

The trust fund recovery penalty. Withheld income tax and the employee share of FICA are trust funds held for the government. A responsible person who willfully fails to remit them can be held personally liable for 100 percent of the unpaid trust fund amount, and that liability pierces the corporation or LLC. Payroll taxes are never a source of short-term working capital.

Step 4: What Labor Really Costs

A $25.00 per hour installer working 2,080 hours costs far more than $52,000:

Cost component Annual amount
Base wages (2,080 hours at $25.00) $52,000
Employer FICA at 7.65% $3,978
FUTA at 0.6% of the first $7,000 $42
Alabama SUTA (example 2.7% of the $8,000 base) $216
Workers compensation (example 6% of payroll) $3,120
General liability allocated to payroll $1,040
Health insurance, paid time off, training, uniforms $8,300
Total annual cost $68,696

That is a 32 percent burden , and the effective cost per billable hour is higher still, because drive time, shop time, training, and paid leave are paid but not sold. A contractor billing against the $25.00 base wage is losing money on every hour.

Step 5: Employee or Independent Contractor

The Internal Revenue Service applies a common-law test grouped into three categories:

Behavioral control - does the business direct when, where, and how the work is performed, and does it train the worker?

Financial control - who invests in tools and vehicles, who can realize a profit or a loss, is the worker paid a flat fee for a result or by the hour, and does the worker market services to the public?

Type of relationship - is there a written contract, are employee-type benefits provided, is the arrangement indefinite, and is the work a core service of the business?

No single factor controls. A helper who rides the company truck, uses company tools, follows the company schedule, and works only for that company is an employee , whatever the paperwork says.

Consequences of getting it wrong : back federal income tax withholding, both halves of FICA, FUTA and SUTA with interest and penalties, back overtime under the FLSA, exposure to a workers compensation claim with no policy behind it, and - uniquely in Alabama - a potential unlicensed-contracting problem under Title 34, Chapter 31, since the misclassified worker was performing certified contractor functions without certification.