The tax rate on payroll is the dollar amount the employer withholds when calculating an employee's salary.
The Payroll Tax Rate The Payroll Tax Rate: Everything You Need to Know
Payroll tax rate refers to the amount of the income of employees that is withheld from their paychecks in order to fund the Social Security and Medicare programs. The current rate for payroll tax is 15.3 percent. Employers pay half, and employees pay half.
Simply put, a payroll tax is intended to benefit of a company's employees. It is based upon their hours of work or salary. Every person has to pay Medicare as well as Social Security taxes using a simple rate of tax on payroll. Taxes on income are calculated on the basis of an individual's earnings and can fluctuate between years.
What is the difference between Income Tax and Payroll Tax?
The terms "payroll tax" are often used to refer to all taxes imposed on employees, however this isn't always the case as there are other types of employment taxes that aren't included in payroll tax for example, federal and state income taxes. Medicare and Social Security taxes, also called FICA taxes are the two major elements of the actual payroll tax.
Employers must pay two additional taxes every pay period. These taxes include the Federal Unemployment Tax and State Unemployment Tax. These taxes are calculated based on earnings and other elements.
How is Payroll Tax Calculated
The current tax rate can be used in calculating the payroll tax. As an example, the Social Security tax rate for 2018 is 6.2 percent for employees. the Medicare tax rate is 1.45 percent. Employers must match this by contributing 6.2 percent and 1.45 percent for employees and 1.45 percent for employers. This percentage rate is applicable to the first $128,400 that an employee earns over the course of a year.
The overall Medicare tax is 2.9 percent which includes the employer paying 1.45 percent, and the employee paying 1.45 percent. Medicare doesn't have a cap on wages subject to tax.
Employees who are married earning more than $250,000 annually and who file jointly pay an additional 0.9 in Medicare tax. The tax applies to married couples who file separately. The tax is calculated on earnings of more than $200,000.
Social security deductions aren't applicable to wages that exceed $128,400, whether for the employee or employer once the individual has earned $128,400 annually in wages. The wage cap is decided on a year-to-year basis. Medicare contributions are applicable regardless of how much earnings may be.
What Is the Self-Employment Tax Rate?
For those who are self-employed, federal tax on payroll are also due. This is done by way of a self-employment tax in contrast to the FICA tax that is paid by employees.
ERC -employment Contributions Act (SECA) tax rate is 15.3 percent, which is applicable to the first $128.400 earned. The first $128,000.00 is split in two portions: 2.9 percent goes to Medicare and 12.4 percent is allocated to Social Security taxes. Self-employed taxpayers are able to take a cut of the 15.3 percent from the federal tax return.
Self-employed workers who also collect pay from their employers will notice that tax withheld from their paychecks count towards the wage limit for Social Security. In this case, a worker who earns $50,000, and self-employed individuals earn $100,000 could be an example. The person pays Social Security tax on $78,400 of self-employment earnings. If both are combined this figure is $128,400.
What are the FICA rates set by law?
Federal Insurance Contributions Act is responsible for collecting Social Security and Medicare payroll taxes. The rates may change only if there is new legislation.
Self-employed people must pay the employer and employee portion of Medicare as well as Social Security FICA taxes.
For 2017, the FICA rate was 7.65 percent for employees and 7.65 percent for employers. For wages total the self-employed worker was charged 15.30 percent.