Understanding Your Payroll Taxes
What are payroll taxes?
- Payroll taxes are taxes on the wages and salaries of employees used to finance social insurance programs like Social Security, Medicare, and unemployment insurance.
Types of Payroll Taxes
- Federal Insurance Contributions Act (FICA) - FICA is made up of three types of payroll taxes as explained below.
- Social Security - funds retirement, disability, and survivor benefits. Both employers and employees contribute (6.2% each, up to a wage base limit set annually).
- Medicare - funds hospital insurance and other health care services for the elderly and disabled. Both employers and employees contribute (1.45% each with no wage base limit).
- Additional Medicare Tax - an additional 0.9% tax on employee wages exceeding $200,000 (no employer match).
- State and Local Income Taxes - additional withholdings required by most states and some cities to fund state and local government programs.
Who pays payroll taxes?
- FICA (Social Security and Medicare) - both employers and employees contribute.
- State and Local Income Taxes - paid by employees.
Employee Responsibilities:
- Employees ensure their W-4 form is accurate, which dictates how much federal income tax is withheld.
- Employees are responsible for their share of FICA taxes and state/local income taxes.