a tax planner calculating taxes

Payroll Taxes: What You Need To Know

The employees and employers pay payroll taxes to the federal and local governments. These taxes include all the withheld taxes from the paychecks and any taxes paid by the employer. These may include:

  • Medicare tax
  • State and federal unemployment taxes
  • State and federal income taxes
  • And finally, the social security taxes

What’s the purpose of payroll taxes?

Payroll taxes are primarily used for social insurance payments, including Medicare and Social Security benefits. Social insurance taxes amount to more than 20% of local, state, and federal government combined.

Who pays the payroll taxes?

The two major social insurance taxes include payroll taxes paid to the federal government–namely MedFICA and FICA. FICA amounts to a 12.4% tax that funds your Social Security, and MedFICA is a 2.9% tax that funds your Medicare insurance.

Half of your payroll taxes (i.e., 7.65%) are paid by your employer, while the rest is taken from your paycheck.

Unemployment benefits

Your employer has the basic responsibility to fund your unemployment insurance. They’ll have to pay for your unemployment benefits if they lay you off. However, the actual rate of the benefits will differ from one industry to another.

The part of federal payroll taxes paid by the employer toward social security insurance is used to pay for your unemployment benefits.

a tax advisor talking to her client

Social Security and payroll taxes

The chunk of your payroll taxes that goes into Social Security is divided into 2 funds: Disability Insurance Trust Fund, which pays for your disability benefits; and OASI (Old-Age and Survivors Insurance) Trust Fund, which pays for survivor and retirement benefits. Thus, after you’re retired or unemployed because of a disability, you’ll be paid out the benefits from these 2 trust funds.

Medicare and payroll taxes

Similar to the social security funds, the Medicare taxes also go into 2 funds: the Supplementary Medical Insurance Trust Fund and the Hospital Insurance Trust Fund. These funds essentially pay toward your health and medical benefits.

Hire tax experts at Nidhi Jain CPA

If you’re looking for tax consultants to manage your firm’s payroll taxes, we can help you. At Nidhi Jain CPA, our certified public accountants have years of experience in providing tax filing and planning services to businesses.

We also offer personal tax filing services, back tax solutions, international tax advice, and more.

Contact us today to learn more about our financial services and business tax filing in Bay Area.