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By Tawee Subsomboon
The term Payroll tax actually includes the Social Security
tax,
Medicare tax and Federal income tax. The Social Security tax
provides benefits for retired workers, the disabled their
dependents and it has a payroll tax rate of 6.2%. There is a
maximum annual amount of Social Security tax withheld per
employee. Social Security taxes are not withheld on amounts
over the earnings limit. In 2004, the earnings limit was
$87,900, and the maximum Social Security tax was $5,449.80.
The Medicare tax provides medical benefits for certain
individuals when they reach age 65 and has a payroll tax rate
of 1.45%.
Federal income tax is used to fund national programs such as
defense, community development, and law enforcement. All
employees must complete Form W-4, the Employee's Withholding
Allowance Certificate, which is used by employers’ payroll tax
departments to determine how much federal income tax to
withhold from the employee’s paycheck. There are a number of
online payroll tax calculators that employees can use to check
if they are having the right amount of money withheld. This is
just as important to see if too little payroll tax is being
withheld as too much payroll tax to make sure that you don’t
have any nasty surprises when you file your tax return because
you actually owe more tax than was withheld.
The amount of payroll tax that is withheld from an employee is
sent to the federal government. If the payroll taxes are
withheld, but not paid to the government, the employee is
covered. The IRS will go after the employer but it is
important
to keep your check stubs as documentation of the withholding
in
case you get an incorrect W-2 Form. A W-2 form is the document
which you will receive at the beginning of February or March
that indicates the total amount of money you have earned and
which portion was withheld for as payroll tax.
The whole issue of payroll tax may seem very confusing;
especially to a first-time employer but there are plenty of
books that can help to clarify the procedures involved. There
are also a number of websites that can offer advice on all
aspects of payroll tax from an employee’s perspective as well
as an employer’s. In fact, there are very few gray areas when
it comes to payroll tax and the procedures, processes and
deadlines are extremely well set out and documented thoroughly
by a variety of sources.
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