Payroll Tax Rates

The payroll tax is something that all employers and employees should know about. When an employer processes payroll, the taxes that are withheld from the employee's income are payroll taxes.

Payroll tax rates are set by state governments and are periodically revised. In many states, the rate is increased or decreases every year. Employers are responsible for paying the payroll tax for employees, and many states have multiple rates that vary slightly. Read on to find out which rates are in force where you do business.

15.3%

The federal government sets the 15.3% payroll tax rate, which is paid by both the employer and the employee. The employer is responsible for paying 7.65% of payroll tax and the employee for the remaining 15.3%. This tax is also called the self-employment tax. Payroll taxes can be paid with the Electronic Federal Tax Payment System. Payment methods for state payroll taxes vary.

6.2%

Under the current tax system, employers pay 6.2% of employees’ pay as Social Security and Medicare taxes. This is in addition to the employee’s 1.45% Medicare tax. Employers also have to contribute to unemployment insurance or FUTA. Employers pay 0.6% of an employee’s salary to cover the cost of unemployment insurance, and most states have a credit of up to 5.4%.

1.45%

The Medicare payroll tax rate is 1.45% of gross pay unless you’re self-employed. If you’re self-employed, the rate is 2.9 percent. The employer pays the remaining 1.45%, and you pay the additional 0.9%.

6.0 percent

The federal payroll tax rate is 6.0 percent for the first $7,000 of covered wages, with tax credits reducing the effective rate to 0.6 percent. State unemployment tax rates vary based on state law and wage bases, but most are below 4.0 percent. In 2019, the federal government collected $41.2 billion in UI taxes. Payroll taxes also fund many retirement programs. For example, the Social Security Administration runs a retirement program for railroad employees. The vast majority of payroll tax receipts go to these programs.

7.0 percent

There are two different payroll tax rates: the federal and state rates. The national rate is 15.3%, while the state rate is about seven percent. In addition, employers must pay the Social Security tax portion of an employee’s income, which is 6.2 percent, and Medicare tax, which is 1.45 percent. Both rates are used to calculate the payroll tax employees owe. These taxes are limited to the taxable amount of the employee’s first $128,400 of earnings in a year.

8.0 percent

In 2024 and 2029, 90 percent of an employee’s earnings would be subject to the payroll tax. Those earnings above this threshold would receive a benefits credit. The secondary PIA formula would calculate “AIME+” – overtaxed earnings – and apply a 2.5 percent formula factor to it.

9.5 percent

Employers and employees pay payroll taxes on wages and other benefits. Payroll taxes cover the cost of Medicare, Social Security, and workers’ compensation insurance. In addition, employers also pay unemployment insurance. The federal employment tax rate is 15.3%. Some states have higher rates.

10.0%

You’re not alone if you’re wondering how to calculate your payroll tax rate. There are payroll tax calculators online and accountants who can help you. In addition to the standard payroll tax rate, employers also have to pay SUI, or Social Insurance Income Tax, and any special rules governing minimum wage standards.

12.0%

The 12.0% payroll tax rate is the highest in the US. The tax is calculated by taking the employee’s taxable maximum plus an additional 2.5 percent as a formula factor. In 2023, ninety percent of employee earnings would be taxable. In years after, earnings above this taxable maximum would be subject to the payroll tax at the total 12.4 percent rate.

At a glance, there are two types of payroll taxes. The income taxes and FICA taxes. You pay Social Security and Medicare taxes that have a fixed rate and federal income tax depending on your income. If the state or the local government you’re working at taxes wages, you will also pay state and/or local income taxes.

Social Security and Medicare Tax Rate

Social Security and Medicare tax rates have stayed the same for a long number of years. Social Security tax rate is 6.2 percent for employees while the Medicare tax rate is 1.45 percent. This is also the same for employers.

Employers are required to match the Social Security and Medicare tax paid by employees. This is on top of the self-employment tax paid. So for each employee, the employee is responsible for paying an additional 6.2 percent of Social Security tax and 1.45 percent Medicare tax.

Both Social Security and Medicare taxes fall under the Federal Insurance Contributions Act taxes, or better known as the FICA taxes. The rates are the same as always. While the 2023 FICA tax rates are the same, it might change in the future. If that happens, be sure to find it on our homepage.

Federal, State, and Local Income Tax

How much your employer is going to withhold as part of income taxes depends on your income and the information provided on the withholding certificate form, better known as Form W-4. Employees can fill out a Form W-4 for the 2023 tax year to provide the information necessary to withhold tax accurately.

If the tax withheld from an employee’s income isn’t accurate, ask the employee to fill out a new Form W-4 with the most accurate information to the employee’s knowledge. This will ensure that the tax withheld isn’t too much or little in comparison to the expected tax liability.

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