What Are Federal Payroll Taxes?
Federal payroll taxes are the federally regulated employment taxes that employers and employees are supposed to pay. The Internal Revenue Service has statutory authority to administrate and collect federal payroll taxes. An employer is required to withhold the employee's taxes and pay them -- plus its own portion -- to the IRS.
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Identification
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The Federal Insurance Contributions Act is a tax provision in the IRS Code that gives the IRS the power to collect Medicare and Social Security taxes; both the employer and the employee pay these taxes. The Current Tax Payment Act of 1943 gave the United States government the right to tax wage earners federal income tax via withholding; the employer deducts it from employees' paychecks. The Federal Unemployment Tax Act authorizes the IRS to collect federal unemployment tax, which only the employer pays.
Key Resource
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IRS Circular E, Employer's Tax Guide, provides comprehensive details on the types of federal taxes an employer is supposed to withhold from employees, the procedures for doing so and payment and tax filing instructions. It also includes the policies on federal unemployment tax payment and tax filing procedures. In addition, it states the penalties for failing to comply with tax withholding, payment and filing laws. Every year, the IRS forwards an updated version of the publication to each employer it has on record.
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Employee Calculations
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To calculate the amount to withhold, an employer uses the employee's W-4 form and the IRS Circular E's federal withholding tax table that matches the employee's filing status and allowances (as her W-4 indicates), income or pay period. An employee who fails to submit a W-4 is subject to a withholding of single with zero allowances -- the highest tax bracket -- until she turns in the form. As of 2011, the employee pays 4.2 percent of taxable wages for Social Security tax, up to $106,800 yearly, and 1.45 percent of all taxable wages for Medicare tax.
Employer Calculations
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As of 2011, an employer pays 6.2 percent of taxable wages paid to each employee, up to $106,800 for the year, for Social Security tax and 1.45 percent of all taxable wages for Medicare tax. In 2011, the employer pays 6.2 percent of the initial $7,000 paid to each employee before July 1 and 6 percent after June 30. It can take a credit of 5.4 percent against its federal unemployment tax if it paid its state unemployment tax as required by the state unemployment office. In this case, the employer's federal unemployment tax rate is .8 percent and .6 percent, before July 1 and after June 30, respectively.
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