Payroll taxes are a critical component of the United States' tax system, playing a vital role in funding essential programs such as Social Security, Medicare, and unemployment benefits. For both employers and employees, understanding the different types of payroll taxes is crucial to ensure compliance with.
Federal income tax withholding
The Federal Income Tax is a progressive tax imposed on individuals' earnings by the federal government. Employers withhold a portion of employees' wages and remit them to the Internal Revenue Service (IRS) on a regular basis. The amount withheld is determined by factors such as the employee's filing status, number of dependents, and any additional allowances claimed on Form W-4.
Social security tax
Social Security tax, also known as the Federal Insurance Contributions Act (FICA) tax, funds the Social Security program, which provides retirement and disability benefits.
Federal Unemployment Tax (FUTA)
The Federal Unemployment Tax Act (FUTA) imposes a tax on employers to fund unemployment benefits for workers who lose their jobs.
Medicare tax
The Medicare tax is another component of FICA and supports the Medicare program, which provides healthcare benefits to individuals aged 65 and older. Unlike Social Security tax, there is no income cap for Medicare tax.
State income tax
In addition to federal income tax, many states impose their own income tax on employees. State income tax rates and regulations vary widely, so employers must be aware of the specific requirements in the states where they operate.
Types of state income tax
SUI (State Unemployment Insurance): This tax is meant to fund unemployment benefits for workers who lose their jobs. Both employers and employees often contribute to this fund.
SDI (State Disability Insurance): This tax provides partial wage replacement for employees who are unable to work due to a non-work-related illness or injury.
State specific compliances
FLI (Family Leave Insurance): This tax is like SDI but specifically designed to provide benefits for family leave situations.
CA ETT tax (California Employment Training Tax): This tax supports state employment training programs. Employers typically pay this tax on the first $7,000 of each employee's wages.
PFML (Paid Family and Medical Leave): This program offers paid time off for eligible employees for family or medical reasons. It's a state-mandated benefit.
FAMLI (Family and Medical Leave Insurance): Another variant of family and medical leave insurance, likely specific to a certain state or program.
EMAC (Employer Medical Assistance Contribution) Tax: This tax contributes to state health care programs. Employers may be required to pay this tax based on their payroll.
MBT (Modified Business Tax): This tax is often applied to gross wages paid by businesses. It's a state-level tax that supports various programs.
WA CARES fund: The Washington State Cares Fund is part of the WA Cares Act, which is designed to provide a long-term care benefit for eligible individuals.
TDFLI (Temporary Disability and Family Leave Insurance): This tax combines temporary disability and family leave insurance contributions. It supports benefits for employees during times of temporary disability or when they need to take leave for family reasons.
Each of these taxes serves a specific purpose, often contributing to programs that support employees during various life and work situations. The complexity arises from the variety of state programs and the specific needs they address.
*The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information and content provided here is for general informational purposes only.