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Payroll tax rate is the amount an employer takes from the employee’s pay.

Payroll Tax Rate Payroll Tax Rate: Everything You Need to Know

The payroll tax rate is the proportion of employees’ income that is removed from their pay in order to pay for Social Security and Medicare programs. The current tax rate for payroll is 15.3 percent. The employees pay half the cost while employers take the other half.

Payroll tax, in simple terms it is a tax for employees of a business. It is calculated using employees’ hourly wages and their salaries. Medicare and Social Security taxes are paid by all people using a fixed pay tax. Income tax is dependent on the individual’s earnings and may fluctuate between years.

What is the difference between Income Tax and Payroll Tax?

Payroll tax is commonly used to refer to all taxation on employment. But, this can be misleading because there are other kinds of taxes that don’t count under payroll tax like federal and state income taxes. Two of the main tax components for payroll include Medicare and Social Security taxes (also known as FICA taxes).

Two additional taxes have to be paid by employers each pay period. These taxes include the Federal Unemployment Tax and State Unemployment Tax. These taxes are based on the wage of each employee , as well as other elements.

How Is Payroll Tax Calculated?

The tax rate currently in effect is used to calculate tax on payroll. As an example it is that 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 and contribute 6.2 percent and 1.45 percent for employees and 1.45 percent for employers. The percentage rate applies to the first $128,400 made in the course of a year.

Check out the post right here is 2.9 percent. 1.45 percent goes to the employer and 1.45 percent is paid to the worker. Medicare does not have a cap on wages subject to tax.

For married employees who make more than $250,000 annually and file jointly and file jointly, the Medicare tax rate will be 0.9. If married and filing separately the tax will be calculated on earnings that exceed $125,000. Tax for all other taxpayers is calculated on wages that exceed $200,000.

When an individual earns $128,400 in annual wages, Social Security deductions will not apply to any wages over this amount, either for the employer or employee. The wage limit is set on a year-to-year basis. Medicare contributions are applicable regardless of how much the wages are.

What is the Self-Employment tax Rate?

The Self-employment Contributions Act tax rate (SECA) is 15.3 percent. This is applicable to the first $128,000. From the first $128,400, 2.9 percent is allocated to Medicare tax and 12.4 percent to Social Security tax. However, self-employed taxpayers can reduce half of this 15.3 percent on their federal tax return.

Self-employed individuals who also receive a salary from their employer will notice that payroll taxes withheld from paychecks contribute to the Social Security wage limit. In this case an employee who earns $50,000 and self-employed individuals earn $100,000 could be an illustration. In this scenario the worker will be liable for the Social Security tax only on the first $78,400 in their self-employment income. If the two figures are added together that figure will be $128,400.

What are the FICA Rates that are set by law?

Federal Insurance Contributions Act is responsible for collecting Social Security and Medicare payroll taxes. The rates may be changed only in the event of new legislation.

Self-employed people are required to pay the employer and employee portions of Social Security/Medicare FICA taxes.

The portion of the FICA rate for an employee was 7.65 percent and 7.65 percent for employers. For wages total, self-employed workers were assessed 15.30 percent.