An Introduction To Payroll Tax
The Federal tax, Social Security Tax and Medicare Tax form a part of the Payroll Tax
. This article will give a brief introduction on each of these tax heads that form the Payroll Tax.Federal Tax
The Federal Tax is a portion of every individual's monthly income that is paid by the employer to the government. The government in turn uses the amount pooled in through the Federal Tax to fund programs and initiatives of national interest and security. The government programs that are funded by the Federal Tax are Law Enforcement, National Defence and Community Development.
The Federal Tax is not a pre-determined percentage of an individual's income. The percentage of monthly income that is deducted depends on the total monthly income of a particular individual. There are a lot of websites that have calculators online to determine the percentage of federal tax that will be deducted from your monthly income.
It is a very good idea to be aware about the actual percentage of your monthly income that should be deducted towards federal tax as this will help you determine whether or not the right amount is being deducted. This will further prevent you from getting unwanted surprises at the time of filing your annual income tax returns or on the other hand from being a victim of excessive federal tax deduction.
The government's payroll taxation department utilizes the Form W-4 which is required to be filled-in by all the employees compulsorily and the corresponding Employees Withholding Certificate to arrive at the percentage of federal tax that needs to be deducted from the employees' income. In case the federal tax has been deducted and not paid to the government there is no risk involved on the part of the employee. However it is advisable to retain the check stubs as a documentary proof lest you should receive an incorrect Form W-2 from your employer. Form W-2 is the annual statement issued by the employers to all their employees giving details of the total annual income that the employee has earned and the portion of income that has been retained towards the federal tax and other forms of payroll tax.
Social Security Tax
The country's pensioners, individuals with some form of physical handicap and their respective dependents are provided government benefits with the help of the Social Security Tax that is deducted from each individual's monthly earning. Unlike the Federal Tax, the Social Security tax is a standard percentage of an employee's annual income. Although the percentage of Social Security Tax that will be deducted from an employee's income is capped at 6.2%, there is also an additional cap on the maximum amount that can be deducted from an individual's income towards the Social Security Tax.
Medicare Tax
Medicare Tax is a 1.45% standard deduction from the income of individuals which provides the government with funds required to provide medical benefit to senior citizens who are above the age of 65.
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