Compulsory payroll taxes, also known as mandatory payroll taxes or payroll taxes, refer to taxes that are required to be withheld from an employee’s wages or salary by an employer. These taxes may be withheld in order to fund a variety of social programs such as Social Security and Medicare. Payroll taxes are deducted on a federal level. In some cases, you may also be responsible for federal payroll taxes to the IRS. Since these taxes are state-based, the exact amount that will be deducted depends on the specific state. Companies registered in the US must file for payroll taxes in their state of formation.
Compulsory payroll taxes are an important revenue stream for the US government. These taxes are used to fund essential government social programs and benefits that support millions of Americans. For instance, the Social Security tax, also known as a FICA (Federal Insurance Contributions Act) tax, funds retirement, disability and survivor benefits. On the other hand, the Medicare tax, which is also referred to as the HI (Hospital Insurance) tax, funds hospital insurance benefits for those over 65 years old or with disabilities.
Furthermore, payroll taxes may be used to provide temporary financial assistance to workers who have lost their jobs through funding unemployment insurance. This program helps to prevent substantial financial hardship during this period.
While there have been minor rate adjustments over time, federal compulsory payroll taxes have generally maintained a consistent rate. According to Forbes, the current federal payroll tax rates are set as:
In conclusion, employers and employees alike should be familiar with the importance of payroll taxes. They are used to fund essential government programs that provide great benefit to US taxpayers, such as Social Security and unemployment insurance. Therefore, while paying these taxes may seem like a burden to some, it is critical to keep in mind that they play a vital role in the US tax system. If you have any questions about your payroll taxes, or if you feel that there has been an error in your payroll taxes, reach out to a specialized tax attorney today. One of our experts at Attorney At Law can assist you in navigating your issue with ease.