Payroll Tax
Candlefocus EditorFor the employee, the payroll tax includes:
• Social Security Tax: Employees pay 6.2 percent of their wages to fund Social Security. The current wage base limit for Social Security is $127,200, meaning no Social Security tax is taken off earnings above this total.
• Medicare Tax: Employees have to pay an additional 1.45 percent of all qualifying earnings for Medicare, with no wage limit. In some cases, employees may owe more if their income is above a certain level.
Employers do not only bear the burden of collecting and remitting funds for their employees, but they also pay separately for their halves of both Social Security and Medicare taxes.
Both Social Security and Medicare are part of the Federal Insurance Contributions Act (FICA). This indicates how payroll taxes are used to pay for government programs, Social Security, Medicare, and other local infrastructure dollars. Social Security payments are used to fund retirees' benefits, while Medicare helps provide healthcare coverage to the elderly.
Due to the complexity of payroll taxes, it can be difficult for an employer to remit the proper amount to the IRS. As a result, the IRS has implemented several measures to make sure employers are taking care of the required payroll taxes. It is recommended that employers have a payroll tax service or third-party payroll provider to automate the tax payment process.
To sum up, payroll taxes are taxes collected from employee wages that are sent to the federal government. Employers and employees must each pay an equal share of Social Security and Medicare taxes, while the employer is also responsible for collecting the tax from their employees and remitting it to the IRS. Payroll taxes are used to fund social security and Medicare, government spending, local infrastructure programs, and more. The complexity of payroll tax laws makes it advisable for employers to hire a payroll service provider to automatically make the correct payments.