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What Are Employee and Employer Payroll Taxes – Explore tax withholdings in more detail

What Are Employee and Employer Payroll Taxes Explore tax withholdings in more detail
Read Time: 3 min

Payroll taxes are wide and versatile, and in 2020, an executive memo was released, enabling employers to delay employee payroll taxes. As per the memo, the Employers who chose to adjourn the deposits of their share of Social Security tax were advised to pay half of the eligible deferred amount, i.e., 50% of the total deferred value, by December 31, 2021, and then they can pay the remaining amount by December 31, 2022.

Furthermore, IRS Notice 2020-65 enables employers to delay their employees’ total share of Social Security taxes in 2020. Although the repayment period ceased on December 31, 2021, employers must send repayments to the IRS as soon as they receive them.

In both cases mentioned above, employers who don’t repay the delayed amount on time should be penalized, and penalty fees and interest on the unpaid balance will be added and must be paid.

Difference Between Employee & Employer Payroll Taxes

Difference Between Employee & Employer Payroll Taxes
Difference Between Employee & Employer Payroll Taxes

Both employees and employers pay payroll taxes, but there’s one big difference. Payroll taxes that employees pay have a direct impact on employees’ net pay, but payroll taxes paid by employers don’t have an impact on it. Employees’ taxes are subtracted from an employee’s total gross pay, which lowers the total net pay for that paycheck. However, Payroll taxes that the employer pays do not affect an employee’s net pay. 

Please note that payroll taxes vary greatly from employment taxes, although they share some overlap in a few cases. 

  • Employment taxes generally include the following
  • Medicare
  • Social Security
  • FUTA

Federal income taxes, as well as there are some extra Medicare Taxes, are also present for eligible employees. They generally accumulate from employee wages. Employers, in most cases, automatically withhold and process them to the Internal Revenue Service (IRS) on behalf of employees.

Meanwhile, payroll taxes are different; they are those that are taken from an employee’s salary and matched by their employer—if we go to more deployments, then Social Security and Medicare taxes are a good example.

To put it one easy way, we can conclude that all payroll taxes are employment taxes, but not all employment taxes can be considered payroll taxes. 

Which Taxes Are Paid By Both Employee & Employer?

Which Taxes Are Paid By Both Employee & Employer
Which Taxes Are Paid By Both Employee & Employer

Both employers and employees pay the following taxes, and these taxes are known as  FICA tax or Social Security and Medicare taxes.

Social Security tax

In 2022 Social Security tax is 12.4%. Among these, 6.2% is for employers, and  6.2% is for employees. This rate is applied to a certain amount that your employee earns, so in certain cases, if your employee makes more than that amount in a financial year, then there won’t be any Social Security taxes withheld once they hit the base limit of their wages. 

Medicare tax

The Medicare portion of the FICA tax is 2.9% of the total gross salary, and it’s applied to every amount that your employee earns after. So in the case of this tax, it’s 1.45% that you are about to pay and 1.45% that your employee will pay. 

Employee payroll taxes

Federal income tax

This tax is paid only by employees and is calculated based on their total salary, personal exemptions, and filing status. The federal tax rate will be between 10% and 37% in 2022.

State income tax

It is another tax that your employee pays based on the state they are working.

Any local taxes

It is based on the city, county, or municipality you work in. Generally, most companies are only required to withhold taxes for counties.

Employer payroll taxes

Federal unemployment taxes (FUTA)

The FUTA, the Federal Unemployment Tax Act, offers a buffer for people who have lost their jobs recently due to unpleasant circumstances. In this case, employers have to pay 6% toward FUTA.

State unemployment taxes

Like FUTA, state unemployment insurance taxes are also paid by employers who lost their job without any proper reason and are actively looking for new openings.

Local taxes

Just like employee tax, It is also based on the city, county, or municipality where you work.

The Conclusion

Employee and Employer Payroll Taxes
Employee and Employer Payroll Taxes

I hope this article has helped you to understand payroll taxes. For any further queries, you can connect us for more information.