What Are Payroll Taxes?
Payroll taxes are levied on employers or employees and are usually calculated as a percentage of employers’ salaries. A payroll tax is a percentage withheld from an employee’s pay by an employer who pays it to the government on the employee’s behalf. The tax is based on wages, salaries, and tips employees receive. Federal payroll taxes are deducted directly from the employee’s earnings and paid to the Internal Revenue Service (IRS).
After employees receive their wages or salary, they may notice a cut-back in the amount; usually, this results from payroll tax. The payroll tax is a multitude of taxes that the employer pays, and in some cases, withheld from an employee’s paycheck. The employer then remits these taxes to the appropriate tax authority, typically the Internal Revenue Service (IRS). Payroll taxes include federal income, Social Security, Medicare, and federal unemployment.
If a business or individual does not pay the payroll taxes, they may face steep penalties. By law, the IRS may impose penalties on individuals or companies complicit in willful retention of the monies they should remit as payroll taxes. The responsible entities may face various other legal sanctions, including jail time. As a result, preventing any payroll delinquency is paramount to corporate bookkeeping. The IRS sees the payroll taxes as a primary source of income for the government, and it has the broad mandate for going after businesses that fail to pay their payroll taxes in full and on time.
Payroll Taxes Example
After a long while of being jobless, Mr. Dan received his first pay but noticed that instead of the $800 basic salary stated on his appointment letter, he got $680. Thinking about the number of things he needed to sort with money, he took his puzzled self to the accountant’s office. He explained his plight to which the accountant, who was more than used to such a situation, took his time to explain to Mr. Dan as seamlessly as possible that the combined federal income tax rate is 15.3% of the employees’ wages which resulted in the deduction in his salary.« Back to Glossary Index