At the end of each pay period, there is a jumble of tax terms staring you down. What does it all mean and could the IRS get any more complicated? (…probably not!) You might be asking yourself “why do I have to pay them all and where does all the money go.” Well, PayWow is here to clear up all the tax confusion. Let us break down your payroll taxes and give you a solid understanding of where in the world all the money goes.
Where In The World Does All The Money Go??
Your Payroll Taxes at a Glance
Employee and Employer Taxes
Social Security Tax
Social Security was created to help people once they reach retirement age. This is important today because two out of three retirees rely on social security for income. For this program to work and to stay compliant, you must contribute 6.2 percent of your employee’s total pay.
You, the employer are also responsible for contributing an additional 6.2 percent.
Medicare is very similar to Social Security; it was created to provide health insurance for individuals over the age of 65 and those with disabilities. Both you and your employees are required to pay 1.45 percent of the total income to the program.
However, those who earn more than $200,000 must contribute an additional 0.9 percent.
Federal Unemployment Taxes (FUTA)
Let’s start off with FUTA which takes its share of each paycheck every pay period. The Federal Unemployment Tax Act or FUTA provides a buffer for individuals who have recently lost their positions.
Employers pay 6 percent to FUTA, but if you pay state unemployment taxes on time, you will receive a 5.4 percent reduction. So, in the end, the FUTA tax rate is 0.6 percent of all wages earned.
State Unemployment Taxes (SUI)
State Unemployment Insurance (SUI) is the state version of FUTA.This serves as another safety net for those recently unemployed. Almost every state has a different tax rate, and it is typically determined by the type of business you own and your unemployment history.
Federal Income Taxes
This is the topic of recent debate! Federal income tax is calculated based on an employee’s total income, status, and exemptions. Exclusion deductions the federal tax minimum is 10 percent, and the maximum is 37 percent. For income over $500,000 (Individuals) and $600,000 (Married).
State Income Taxes
Most states collect income tax on top of the federal amount but the percentage varies. For the full list of 2018 state income taxes click here.
Guaranteed Tax Compliance
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