What are Payroll Taxes?

what are fica withholdings

Are you confused about FICA, FUTA, SUTA, Social Security, Medicare and other withholdings? Read this to get the answer to the question, "What are payroll taxes?"

Payroll taxes are the statutory funds an employer is required by law to withhold based on the current wages, tips, salary or other compensation of an employee. In the United States, the federal and state governments both require the collection of payroll taxes. The taxes withheld provide for social security, Medicare and other funds such as unemployment.

FICA

In the United States, Medicare and social security reside under the category of taxes contained in the Federal Insurance Contributions Act, commonly known as FICA. As a joint tax, both the employee and the employer share in the payment of FICA taxes. Employers deduct the employee’s portion from the worker’s compensation to be paid and pay the other portion accordingly.

Some taxes within FICA have a wage base. The wage base is the dollar amount that must be reached during the year before the employer and/or the employee can stop paying taxes. As contributions and compensation progress at the appropriate rate when the wage base is reached neither party is required to contribute towards the tax. Taxes that have no wage base require continual contributions throughout the year and during the full course of employment by both parties.

FUTA and SUTA

Federal unemployment tax and state unemployment tax, FUTA and SUTA respectively are

contributions to funds that employers are required to make according to federal and state law. Though similar in nature FUTA and SUTA have different requirements and regulations. However, both of these taxes are essentially payments that fund the unemployment system and serve as a reserve pools of income for qualified workers who lose their employment.

PAYG and PAYE

Pay-as-you-go and pay-as-you-earn are also withholding taxes that are equivalents to payroll taxes. Australia and the United Kingdom operate their withholdings using these systems. Under the PAYG system an employee receives a summary statement from their employer detailing all compensation and amounts withheld during the financial year. This information is then used for processing a tax return.

The PAYE system considers withholdings as advanced payments of tax liability. If the withheld amount exceeds this figure a refund is granted based on the proper filing of a tax return. Similar to the payroll system in the US, PAYE withholdings apply towards medical care and retirement funds.

For further detail regarding payroll taxes please consult an authority in your jurisdiction on the subject, such as the IRS in the United States or a proficient tax attorney or accountant in your locale. This payroll tax guide merely serves as an overview and may not meet your specific needs. However it should assist you in understanding the basics of what goes into a payroll check and also answers the question, “What are payroll taxes?”

Source: payrollpayouts.com

Category: Insurance

Similar articles: