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Payroll Taxes Explained

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Social Security Tax (part of FICA)

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Funds the Social Security program and as of the most recent data, the rate is 12.4% split evenly between employer and employee (6.2% each).

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Medicare Tax (part of FICA)

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Funds Medicare and has a rate of 2.9%, split evenly between employer and employee (1.45% each), with an additional 0.9% for high earners.

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Federal Unemployment Tax (FUTA)

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Funds unemployment compensation programs and has a federal rate of 6.0% on the first 7,000ofincome,withcreditsthatcanreducetherateto0.67,000 of income, with credits that can reduce the rate to 0.6%.

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State Unemployment Tax (SUTA)

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Varies by state, employers pay this tax to fund their state's unemployment insurance program.

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Additional Medicare Tax

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A 0.9% tax that applies to individual incomes over 200,000,or200,000, or 250,000 for married couples filing jointly.

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Self-Employment Tax

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Consists of the employer and employee portions of Social Security and Medicare taxes, totaling 15.3%.

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Gross Pay

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The total earnings of an employee before payroll taxes and other deductions.

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Net Pay

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The amount of an employee's earnings after all deductions, including taxes, insurance, and retirement contributions, have been taken out.

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Payroll Withholding

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Amounts withheld from an employee's wages by the employer to pay part of the employee's income tax liabilities.

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Employer Payroll Tax Responsibilities

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Employers are responsible for withholding the correct amount of taxes, contributing their share of taxes, and submitting all taxes to the appropriate authorities.

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