- Employers withhold payroll taxes and income taxes from employees
- Employers send the amounts withheld to the federal governement
- Employees complete form W4
- Employes use form W4 to determine how much tax to withhold from employee's pay
Two kind of taxes:
- Income taxes
- Paid only by the employee
- Includes Federal, State and Local Tax
- Payroll taxes (a.k.a FICA tax)
- Paid by both employers and employee
- Includes Social Security Tax & Medicare Tax
Social Security Tax
Social Security tax provides the following benefits for employees and their dependents:
- Retirement benefits
- Benefits for the dependents of retired workers
- Benefits for the disabled and their dependents
As of 2024, Social Security Tax is 6.2%
Medicare Tax
The Medicare tax is used to provide medical benefits for certain individuals when they reach age 65. Workers, retired workers, and the spouses of both are eligible to receive Medicare benefits upon reaching age 65.
As of 2024, Medicare Tax is 1.45%
FUTA tax: Federal Unemployment Tax - The Federal Unemployment Tax Act is a United States federal law that imposes a federal employer tax used to help fund state workforce agencies. This is currently 6%
Federal Income Tax
Federal income taxes finance:
- National defense, veterans, and foreign affairs
- Social programs
- Physical, human, and community development
- Law enforcement
- Interest on the national debt
Gross Pay - Total earnings
Net Pay - Gross Pay - (Social Security Tax + Medicare Tax + Federal Tax + State Tax + Local Tax)