Payroll tax
Payroll tax generally refers to two different kinds of taxes, one which employers are required to withhold from employee?s pay, also known as withholding, Pay-As-You-Earn (PAYE) or Pay-As-You-Go (PAYG) tax and the other tax directly related to employing a worker paid from the employer's own funds. These taxes may be either fixed charges or proportionally linked to an employee's pay. Payroll taxes are the state and federal taxes that, as an employer, one is required to withhold and/or to pay on behalf of the employees. As an employer, one is required to withhold state and federal income taxes as well as social security and Medicare taxes from the employees wages. One is also required to pay a matching amount of social security and Medicare taxes for the employees and to pay State and Federal unemployment tax.
Technical Details
An employer requires having each new employee complete the IRS form W-4. The employer would use this form to calculate the amount of federal income tax to withhold from the employee's wages. Most of the states have income tax structures that are based on the federal system, the employer would use the W-4 to calculate the amount of state income tax to withhold as well. Social security and Medicare taxes, also known as FICA taxes must be withheld from the employees wages. As an employer, one must also pay a matching amount of FICA taxes for the employees.
Currently the social security tax rate is 6.2%. One is required to withhold 6.2% of an employee's wages for social security taxes and to pay a matching amount in social security taxes until the employee reaches the wage base for the year. The wage base for social security tax is $97,500 for the year 2007. Once that amount is earned, neither the employee nor the employer owes any social security tax. The Medicare tax rate is 2.9% for the employee and the employer. One will withhold 1.45% of an employee's wages and pay a matching amount for Medicare tax. There is no wage base for the Medicare portion of the FICA tax. Both the employer and the employee continue to pay Medicare tax, no matter how much is earned. The employer also must pay State and Federal Unemployment Taxes (SUTA and FUTA). The FUTA rate is 6.2 %, but an employer can take a credit of up to 5.4% for SUTA taxes that one pays. If one is eligible for the maximum credit the FUTA rate will be 0.8%. The wage base for FUTA is $7,000. One stops paying FUTA for each employee once the individual wages exceed $7,000 for the year.
Awareness
Better awareness, information and assistance regarding the payroll taxes can be acquired from the official portal of IRS An individual can also get in touch with the tax professionals to seek advice and guidance. For information on Federal payroll tax requirements, one can check out the IRS publication 15, Circular E. For information on State payroll tax requirements, an individual can contact the state's taxation and revenue department.
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