Payroll taxes are a form of taxes that must either be paid by employers or employees each pay period. The amount of payroll taxes that are deducted depends on the wage of an employee. The higher the wage then the more taxes will be deducted, and the lower the wage, the less it will be deducted.
When it comes to payroll taxes, they can be paid in one of two ways. (1) The payroll taxes can be deducted from an employee’s compensation every pay period. (2) The taxes can be paid by the employer based on the employee’s wages.
Withholding funds from an employee’s paycheck go towards various contributions including federal and state taxes, Medicare, and social security. On the other hand, taxes paid by the employer are typically made to match contributions made by their employee. For example, an employer must match the social security deduction made to an employee’s compensation.
Payroll Taxes Include:
Federal Payroll Taxes: These taxes help cover the cost of social security and Medicare. Federal payroll taxes must be deducted from an employee’s paycheck and matched by the employer. Also, employees that make a certain amount of money may also be required to pay an additional Medicare tax but this does not need to be matched by the employer.
Self-Employment Taxes: This applies to individuals that are self-employed. Like federal payroll taxes, these contributions go toward Medicare and social security. Because these individuals are self-employed, they do not have worry about payroll deductions.
At the beginning of the following year, both employers and employees must report their withholdings to the Internal Revenue Service (IRS).
What about Income Taxes?
Income taxes are not included in payroll taxes, simply based on their use. While payroll taxes help with various contributions, income taxes are placed in a government account. It should also be noted that employers are not required to match the amount of income tax withholdings made by their employees.
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