What Are the Five Major Payroll Tax Types? Employers deduct payroll taxes from their employee's paychecks. These taxes are mandated by law, and noncompliance can result in penalties for employers. Social security and Medicare taxes are among these deductions. These taxes depend on the employee's employment status, and most employers deduct the required amount for each employee. State income taxes and taxes on self-employment are additional levies. Citizens of the United States have federal income and Social Security taxes taken from their salaries and wages. Local taxes may be deducted as well. Also deductible are health insurance premiums, TSP investments, TSP loan repayments, FEGLI optional life insurance, and Federal Flexible Spending Account Programs. Pre-tax or post-tax deductions are permitted for employee health insurance, union dues, and retirement schemes. Pre-tax contributions can save employees a significant amount over post-tax charges. However, employees should consult their employers to determine their pre-tax contribution limits. Employers typically limit the total amount of pre-tax contributions an employee can make to their 401(k) plan. State and local tax withholdings are based on the location of the employer. In addition, some states collect income taxes while others do not; therefore, verifying your state's withholding rules before employment is prudent. In addition, if you are a new employer, review the state-by-state list of payroll information to determine whether you must adhere to state-level rules. There are both voluntary and mandatory payroll deductions. These deductions lower a worker's taxable gross compensation, often known as net pay. On pay stubs, withholdings and deductions are typically used interchangeably. Nevertheless, while beliefs are optional, federal and state taxes are mandatory. The FICA tax supports Social Security and Medicare. Social Security accounts for 6.2% of employee taxes, while Medicare is 1.45%. The employer is required to match these deductions and submit the total to the IRS. In addition, self-employed individuals must pay an additional 15.3% of their income in FICA taxes. This total amount can be distributed proportionally over a pay period or produced in a lump sum at the end of the year. Generally, the federal income tax brackets run from 10% to 37%. These rates increase with time. The employee's wages are taxed at a lower rate until they reach the threshold for a given bracket, after which the speed gradually increases. The taxable amount depends on the employee's filing status and gross income. Periodically, the IRS alters tax bracket thresholds to account for inflation. When an employee moves jobs or suffers a change in circumstances, Form W-4 must be revised. For instance, if employees take a sabbatical, their W-4 Form must be modified. Until the
employee's W-4 is received, tax withholding is applied if the employee has a zero allowance. In the interim, tax withholding will be determined at a single person's rate. The new withholding deductions will become effective during the pay period following the receipt of the Form. These deductions cannot be modified retroactively.