Payroll Taxes

There are two types of payroll taxes. The first are taxes that employers are required to withhold from employees’ wages. These withholdings are often advance payments of federal and state income taxes, social security contributions, and other various insurance payments. The second kind of payroll taxes are paid from the employers own funds and are directly related to the employment of an employee.

Why do I pay payroll taxes?

Payroll taxes are required to be paid by all payroll employees. These taxes are used to cover many of the social service programs provided by our federal and state governments. All employees that receive a payroll  check have these taxes taken out of their check and paid on their behalf by an employer each pay period. Subcontracted employees, those not on a company payroll but still receiving payment for services, are required to pay these taxes as well. Subcontracted workers will see these taxes applied at the end of the year when they file a federal tax return.

What taxes are included in Payroll Taxes?

1. Income Tax Withholding – These can include federal, state, and local income taxes. Computation of the amount withheld is determined by information given to the employer by the employee on an IRS form W-4. Income taxes withheld are not final tax payments but prepayments applied against an employee’s tax liability at the end of the fiscal year.
2. Social Security, Medicare Taxes, & State Disability – These are social insurance taxes that are required to be paid by both the employer and the employee. These taxes are used to support our federal social service programs and are required to be paid by all citizens.
3. Unemployment Taxes – Employers are subject to pay unemployment taxes by the federal and all state governments.

How do I calculate Payroll Taxes?

Payroll tax rates change on a year to year basis. Many accounting programs offer this service built in (for an additional fee) and will help you generate paychecks and pay payroll liabilities on time and accurately. For larger companies this process might not be enough. Many companies use an outside payroll service or have an in-house payroll specialist who primarily focuses is on generating paychecks and filing payroll forms on time and accurately.