How Much Are Payroll Taxes?
Federal and many state laws require both employers and employees to pay payroll taxes. The amount depends on the governing agency and the tax itself. The Internal Revenue Service oversees federal payroll tax policies; state agency names vary by state and the type of tax.
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Types
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The Federal Insurance Contributions Act (FICA) requires the collection of Social Security and Medicare taxes. Employers withhold these taxes from employees' paychecks, plus pay their own share. The Current Tax Payment Act of 1943 made federal income tax withholding mandatory -- the IRS sets the withholding guidelines employers must comply with. All states, except for Alaska, Nevada, Florida, Texas, Tennessee, South Dakota, New Hampshire, Washington and Wyoming, require state income tax withholding. Some cities and local governments require income tax withholding as well. Less commonly, state disability withholding may apply. Along with Social Security and Medicare taxes, the employer pays federal and state unemployment taxes, and depending on the state, job/employment training tax.
Employee Amounts
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In 2011, the employee pays Social Security tax at 4.2 percent of gross wages, up to the yearly wage base of $106,800; and Medicare tax at 1.45 percent of all gross earnings. The employer uses the IRS withholding tax table relevant to the employee's filing status and allowances (as per his W-4 form) to figure federal income tax withholding. State, city and local income tax withholding rules vary. For example, the Georgia Department of Revenue requires employers to use the state withholding tax tables and the employee's withholding allowance certificate to calculate state income tax, but Pennsylvania requires withholding at a flat withholding percentage of 3.07 percent for 2011. If state disability withholding applies, the state sets the tax rate and withholding limit.
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Employer Amounts
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In 2011, the employer pays Social Security tax at 6.2 percent of gross wages, up to $106,800 for the year; and Medicare tax at 1.45 percent of all wages. Before July 1, 2011, it pays federal unemployment tax at 6.2 percent of the initial $7,000 paid to each worker; after June 30, 2011, it pays 6 percent. State unemployment tax varies by state; each year the state sends the employer its tax rate and the annual wage base for the upcoming year. State unemployment taxes generally depend on the newness of the business and the number of former employees who have drawn unemployment benefits -- the more employees who receive benefits, the higher the rate. The employer receives a reduction in its federal unemployment tax rate if it paid its state unemployment taxes as required. If job training tax applies, the state sets a wage base and the tax rate. For example, the Arizona Department of Economic Security requires a job training tax of .10 percent of the initial $7,000 paid to each worker.
Considerations
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The employer pays its -- and the employee's -- share of Social Security and Medicare taxes, plus federal income tax withholding to the IRS. It pays state, city and local income taxes, and other required taxes to the appropriate agency.
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