How do employee payroll taxes work?

Unlike income taxes, employee payroll taxes are based on a percentage of an employee’s wages instead of total earnings. Employers withhold payroll taxes from employee paychecks before issuing net pay.

What are the most common employee payroll taxes?

The most common payroll taxes in the U.S. include Social Security tax, Medicare tax, and state and local payroll taxes. Employees contribute 6.2% of their wages to Social Security, which provides retirement and disability benefits for eligible individuals. Additionally, employees pay 1.45% of their salaries toward Medicare, with an extra 0.9% surtax imposed on high earners, those with income over $200,000. Depending on the state or locality, employees may also face additional payroll tax deductions for programs such as disability insurance, unemployment, paid family leave, or local taxes that support public services.

Do employers also pay payroll taxes?

Employers contribute an equal share of Social Security and Medicare taxes, which help fund these programs. Additionally, employers cover the full cost of federal unemployment tax (FUTA) and state unemployment taxes (SUTA), which provide temporary financial assistance to individuals who lose their jobs.

Why are payroll taxes necessary?

Understanding payroll taxes ensures employees know how much of their earnings goes towards government retirement programs, unemployment financial assistance, healthcare programs, and other employee benefits. Accurately withholding and paying payroll taxes helps employers prevent penalties and fines. This ensures businesses can stay compliant while business operations run smoothly.