The payroll tax rate is the amount that is withheld by an employer when computing an employee's paycheck.
The Payroll Tax Rate What You Must Know
The payroll tax rate is the percentage of all employees' income that is taken from their paychecks to pay for the Social Security and Medicare programs. The current rate for payroll tax is 15.3 percent. Employers pay half, and employees get half.
Payroll tax, in simple terms it is a tax for employees of a firm. It is calculated on the hourly wage of employees and salaries. Medicare and Social Security taxes are paid by everyone using a flat payroll tax rate. Income tax is based on an individual's earnings and can fluctuate between years.
What is the difference between payroll tax and income tax? tax?
Payroll tax is usually utilized to refer to all taxes imposed on employees. However, this could be misleading because there are different types of employment taxes which don't include under payroll tax like state and federal income taxes. The two main elements of payroll taxes are Medicare as well as Social Security taxes (also known as FICA taxes).
Employers have to pay two additional tax each pay period. These taxes are for State Unemployment Tax (SUTA) and Federal Unemployment Tax (FUTA). These taxes are based upon the wage of every employee as well as other variables.
How do Payroll Taxes Calculated?
The tax on payroll is calculated using the tax rate currently in effect. The 2018 Social Security tax rate is 6.2 percent for employees. The Medicare tax rate is 1.45 percent. Employers are required to match this rate by contributing 6.2 percent and 1.45 percent in each case. The percentage is applicable to the first $128,400 an employee earns in a given year.
The total Medicare tax rate is 2.9 percent. 1.45 percent goes to the employer and 1.45 percent is paid to the worker. Medicare doesn't have a cap on wages that are subject to taxes.
For married employees who earn more than $250,000 per year and file jointly with their spouses, the Medicare tax will be 0.9. The tax applies to married couples who file separately. Tax for all other taxpayers is calculated on wages that exceed $200,000.
If an individual earns $128.400 in annual wages, Social Security deductions will not apply to any wage that exceed this amount for either the employer or employee. The wage limit is calculated on an annual basis. Medicare contribution is applicable no matter what the amount of the wage is.
What is the Self-Employment Tax Rate?
If you're self-employed, federal tax on payroll must also be paid. This is done by form of a self-employment tax as opposed to the FICA tax that employees pay.
The Self-employment Contributions Act (SECA) tax rate is 15.3 percent. This is applicable to the first $128.400 earned. From the first $128,400, 2.9 percent is allocated to Medicare tax and 12.4 percent to Social Security tax. Self-employed taxpayers are able to reduce half of this 15.3 percent from their federal tax return.
Self-employed workers who also collect a paycheck from an employer will see that the tax deductions for payroll are counted toward the wage limit of Social Security. For instance, someone who makes $50,000 as a W-2 employee and earns $100,000 as a self-employed person. The person pays Social Security tax on $78,400 of self-employment income. If both are combined this figure is $128,400.
What Are the FICA Rates that are set by law?
Jace T Mcdonald (FICA) is responsible for collecting Medicare as well as Social Security payroll taxes. The rates are subject to be altered only if there's any new legislation.
Self-employed individuals must pay both the employer and employee portions of Medicare/Social Security FICA tax.
In 2017 the FICA rate was 7.65 percent for employees, and 7.65 percent for employers. Self-employed people pay 15.30 percent for total wages.