Hi,
Can anyone help me out by providing information regarding US payroll components, taxation, and benefits that are being followed? I am looking forward to receiving information that will enhance my knowledge about US payroll.
Regards,
Rachna Sinha
From India, Hyderabad
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7Can anyone help me out by providing information regarding US payroll components, taxation, and benefits that are being followed? I am looking forward to receiving information that will enhance my knowledge about US payroll.
Regards,
Rachna Sinha
From India, Hyderabad
Acknowledge(0)Amend(0)
Payroll Taxes in the U.S.
Before considering payroll taxes, we need to discuss the Basic Formula for Net Pay. Basically, from gross pay, one or more deductions are subtracted to arrive at Net Pay. In fact, an employee's gross pay (pay rate times the number of hours worked, including any overtime) minus payroll tax deductions and voluntary payroll deductions equals Net Pay. As you can see, payroll tax deductions play a critical role, and because they are mandated by law, we can call them statutory payroll tax deductions.
The employer must withhold payroll taxes from an employee's check and remit them to several tax agencies by law. Payroll taxes include:
1. Federal income tax withholding, based on withholding tables in "Publication 15, Employer's Tax Guide" by the Internal Revenue Service (IRS).
2. Social Security tax withholding. The employee pays 6.2 percent of the salary or wage, up to $110,100 (as of 2012). The employer also pays 6.2 percent in Social Security taxes. If you are self-employed, you pay the combined employee and employer amount of 12.4 percent in Social Security taxes on your net earnings.
3. Medicare tax. The employee pays 1.45 percent in Medicare taxes on the entire salary or wage. The employer also pays 1.45 percent in Medicare taxes. If you are self-employed, you pay the combined employee and employer amount of 2.9 percent in Medicare taxes on your net earnings.
4. State income tax withholding.
5. Various local tax withholdings, such as city taxes, county taxes, school taxes, state disability, and unemployment insurance.
References for Payroll Tax Information
As for the sources considered as references, we can mention the following publications:
- Publication 15 (Circular E), Employer's Tax Guide. This publication explains employer's tax responsibilities, including requirements for withholding, depositing, reporting, paying, and correcting employment taxes. It details the forms any employer must give to its employees, those employees must give to the employer, and those the employer must send to the IRS and SSA (Social Security Administration). This guide also includes tax tables needed to figure the taxes to withhold from each employee.
- Publication 15-A, Employer's Supplemental Tax Guide. This publication supplements Publication 15 (Circular E) and contains specialized and detailed employment tax information.
- Publication 15-B, Employer's Tax Guide to Fringe Benefits. This publication supplements both Publication 15 (Circular E) and Publication 15-A, providing information about the employment tax treatment of various types of noncash compensation.
Employer Payroll Taxes
In the earlier part, we considered payroll taxes related to the employee's side. Now it's time to talk about Employer Payroll Taxes. Employers are responsible for paying their portion of payroll taxes, which are an expense over and above the expense of an employee's gross pay. The employer portion of payroll taxes includes the following:
1. Social Security taxes (6.2% up to the annual maximum).
2. Medicare taxes (1.45% of wages).
3. Federal unemployment taxes (FUTA).
4. State unemployment taxes (SUTA).
Very often, you can hear people using FICA in their terminology. FICA stands for the Federal Insurance Contributions Act, and the FICA tax consists of both Social Security and Medicare taxes. As we explained earlier, both parties pay half of these taxes. Employees pay half, and employers pay the other half. Social Security and Medicare taxes are paid by both employees and employers. In summary, together both halves of the FICA taxes add up to 15.3 percent.
Any employer is responsible for paying the employer's share of payroll taxes, depositing tax withheld from employees' paychecks, preparing various reconciliation reports, accounting for the payroll expense through their financial reporting, and filing payroll tax returns. As you see, this suite of employer payroll tax responsibilities goes far beyond issuing paychecks to employees.
Thanks,
Dilshad Ali
From India, Delhi
Acknowledge(0)Amend(0)
Before considering payroll taxes, we need to discuss the Basic Formula for Net Pay. Basically, from gross pay, one or more deductions are subtracted to arrive at Net Pay. In fact, an employee's gross pay (pay rate times the number of hours worked, including any overtime) minus payroll tax deductions and voluntary payroll deductions equals Net Pay. As you can see, payroll tax deductions play a critical role, and because they are mandated by law, we can call them statutory payroll tax deductions.
The employer must withhold payroll taxes from an employee's check and remit them to several tax agencies by law. Payroll taxes include:
1. Federal income tax withholding, based on withholding tables in "Publication 15, Employer's Tax Guide" by the Internal Revenue Service (IRS).
2. Social Security tax withholding. The employee pays 6.2 percent of the salary or wage, up to $110,100 (as of 2012). The employer also pays 6.2 percent in Social Security taxes. If you are self-employed, you pay the combined employee and employer amount of 12.4 percent in Social Security taxes on your net earnings.
3. Medicare tax. The employee pays 1.45 percent in Medicare taxes on the entire salary or wage. The employer also pays 1.45 percent in Medicare taxes. If you are self-employed, you pay the combined employee and employer amount of 2.9 percent in Medicare taxes on your net earnings.
4. State income tax withholding.
5. Various local tax withholdings, such as city taxes, county taxes, school taxes, state disability, and unemployment insurance.
References for Payroll Tax Information
As for the sources considered as references, we can mention the following publications:
- Publication 15 (Circular E), Employer's Tax Guide. This publication explains employer's tax responsibilities, including requirements for withholding, depositing, reporting, paying, and correcting employment taxes. It details the forms any employer must give to its employees, those employees must give to the employer, and those the employer must send to the IRS and SSA (Social Security Administration). This guide also includes tax tables needed to figure the taxes to withhold from each employee.
- Publication 15-A, Employer's Supplemental Tax Guide. This publication supplements Publication 15 (Circular E) and contains specialized and detailed employment tax information.
- Publication 15-B, Employer's Tax Guide to Fringe Benefits. This publication supplements both Publication 15 (Circular E) and Publication 15-A, providing information about the employment tax treatment of various types of noncash compensation.
Employer Payroll Taxes
In the earlier part, we considered payroll taxes related to the employee's side. Now it's time to talk about Employer Payroll Taxes. Employers are responsible for paying their portion of payroll taxes, which are an expense over and above the expense of an employee's gross pay. The employer portion of payroll taxes includes the following:
1. Social Security taxes (6.2% up to the annual maximum).
2. Medicare taxes (1.45% of wages).
3. Federal unemployment taxes (FUTA).
4. State unemployment taxes (SUTA).
Very often, you can hear people using FICA in their terminology. FICA stands for the Federal Insurance Contributions Act, and the FICA tax consists of both Social Security and Medicare taxes. As we explained earlier, both parties pay half of these taxes. Employees pay half, and employers pay the other half. Social Security and Medicare taxes are paid by both employees and employers. In summary, together both halves of the FICA taxes add up to 15.3 percent.
Any employer is responsible for paying the employer's share of payroll taxes, depositing tax withheld from employees' paychecks, preparing various reconciliation reports, accounting for the payroll expense through their financial reporting, and filing payroll tax returns. As you see, this suite of employer payroll tax responsibilities goes far beyond issuing paychecks to employees.
Thanks,
Dilshad Ali
From India, Delhi
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