Payroll Tax
Taxes withheld from employee wages for Social Security and Medicare.
Payroll taxes are employment taxes deducted from employee wages and matched by employers, primarily funding Social Security (6.2% each) and Medicare (1.45% each). Employers are responsible for withholding, matching, depositing, and reporting these taxes. The employer's share is an additional cost above gross wages.
Formula
FICA Per Employee = 6.2% (Social Security) + 1.45% (Medicare) = 7.65% of wages (employer matches)Example
An employee earning $60,000 has $4,590 withheld for payroll taxes (7.65%), and the employer pays an additional $4,590 in matching contributions.
Why It Matters for Your Business
Payroll taxes are your legal responsibility as an employer, and failing to deposit them on time can result in severe penalties and personal liability.
Related Terms
More Taxes Terms
Adjusted Gross Income
Gross income minus specific deductions like retirement contributions.
Tax Audit
An examination of tax returns by the IRS to verify accuracy.
Capital Gains
Profit from selling an asset for more than its purchase price.
Capital Loss
Loss from selling an asset for less than its purchase price.
Tax Deduction
An expense that reduces taxable income.
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