Payroll Taxes
Purpose
United States payroll taxes are taxes that employers withhold from employees' paychecks, as well as taxes that employers pay themselves. These taxes primarily fund Social Security and Medicare, which provide benefits for retirees, the disabled, and certain survivors. Here’s a breakdown:
Social Security Tax
- Employee Contribution: Employees pay 6.2% of their gross wages up to a certain wage limit, which is adjusted annually (e.g., $160,200 for 2023).
- Employer Contribution: Employers also pay 6.2%, matching the employee's contribution.
Medicare Tax
- Employee Contribution: Employees pay 1.45% of their gross wages, with no wage limit.
- Employer Contribution: Employers match this with an additional 1.45%.
Federal Unemployment Tax Act (FUTA)
- Employer Contribution: Employers pay 6.0% on the first $7,000 of each employee's wages.
State Unemployment Taxes (SUTA)
- States impose their own unemployment taxes, which vary by state. These taxes are typically paid only by employers and fund state unemployment benefits.
Other Deductions
- Employers may also withhold for other programs like state disability insurance or local taxes (such as DC’s Paid Family Leave), depending on the jurisdiction.
Garnishment
- Some people are not so good about paying their child support or other government bills. Sometimes the government can force the employer to take funds out of an employee’s pay check to cover past due assessments.
Summary
Both employers and employees contribute to payroll taxes, and the amounts vary based on income employee location and local regulations.