Saturday, May 13, 2017

Payroll Tax

A payroll tax is a tax that an employer withholds and pays on behalf of his employees, and it is based on the wage or salary of the employee. In most countries, including the United States, federal authorities as well as many state governments collect some form of payroll tax.

In the United States, federal payroll taxes cover Social Security and Medicare contributions. As of 2016, employers must take 6.2% of their employees' earnings for payroll taxes. Employers must also match the amount withheld from their employees' checks and submit the total to the Internal Revenue Service (IRS).

As of 2015, employers only need to withhold payroll tax on the first $118,500 that their employees earn. However, they must withhold an additional 0.9% on all earnings over the threshold. This is an additional Medicare tax, and employers do not have to match it.

Payroll taxes are specific taxes used for specific programs, and they are distinct from income taxes, which are put into the government's general fund. While everyone pays a flat payroll tax, income taxes are progressive, and rates vary based on earnings.

(via Investopedia)