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Net Pay is critical in the consideration of payroll taxes. An employee's gross pay (pay rate times number of hours worked, including any overtime) minus payroll tax deductions, minus voluntary payroll deductions, is equal to Net Pay. Payroll tax deductions play a critical role and because they are provided by law they are known as statutory payroll tax deductions.

Payroll taxes in the United States[edit]
By law, employers must withhold payroll and income taxes from employees' checks and transfer them to several tax agencies.

Employee Taxes
''Payroll taxes that are taken out of the employee's check include Social Security, or FICA, and Medicare taxes. Employees pay 6.2% of their salary to Social Security up to $132,900. Wages earned after an employee has earned gross wages of $132,900 are no longer subject to Social Security taxes. Employees must also pay 1.45% of their earned wages towards Medicare. Wages earned in excess of $200,000 are subject to a 0.9% Additional Medicare Tax. This means that every dollar earned over $200,000 is subject to Medicare taxes that total 2.35% .''

Income taxes that employee wages are subject to include federal income tax withholding, state income tax withholding, and various local taxes. ''Federal income tax withholding is different for each employee based on filing status, allowances elected, and total wages earned, which is determined when an employee fills out the federal W-4 Form. Federal income taxes are determined by the federal government and are governed by the Internal Revenue Service. State income tax withholding is determined by each state individually and vary in amounts. There are 7 states that have no income taxes and two others that tax only dividend and interest income, which do not involve payroll ''. ''Depending on the location, sometimes there will also need to be local taxes included in the taxes taken out of each employee's pay check as well. Local income taxes are not nearly as common as federal and state income taxes and most people will not have any local income taxes that have to be paid.''

Employer Taxes
''While income taxes are only paid by the employee, payroll taxes are paid not only by the employee, but also by their employer. Payroll taxes that employer's must pay are FICA, Medicare, FUTA, and SUTA. The employer portion of the Social Security tax that is paid is the same as the employee portion. Employers must pay a match that is an additional 6.2% of each employee's wages that caps at $132,900 worth of earned wages for each employee. For Medicare, employers must pay a match of 1.45% of all employee wages earned. Contrary to the employee portion, the employer does not pay to pay Additional Medicare Tax Withholding of 0.9% on wages earned above $200,000 .''

''Employers also have two payroll taxes they must pay that the employees do not have to pay. These two taxes are FUTA and SUTA. FUTA, or Federal Unemployment Tax Act, is a tax that is used to fund those employees who have lost their jobs through unemployment compensation. Initially, FUTA is taxed at 6% of the first $7,000 earned by each employee. However, most employers receive a credit, or discount, or 5.4% which leaves the effective FUTA tax rate at 0.6% of the first $7,000 earned by each employee .''

Payroll taxes include the following:


 * 1) Federal income tax withholding, based on withholding tables in "Publication 15, Employer's Tax Guide" by the Internal Revenue Service – IRS;
 * 2) Social Security tax withholding. The employee pays 6.2 percent of the salary or wage, up to $118,500 (as of 2015–2016).
 * 3) The employer also pays 6.2 percent in Social Security taxes. If you are self-employed, you pay the combined employee and employer amount of 12.4 percent in Social Security taxes on your net earnings;
 * 4) Medicare tax. The employee pays 1.45 percent in Medicare taxes on the entire salary or wage. 0.9% is added for the salary portion bigger than $200,000 (only for the employee portion). The employer also pays 1.45 percent in Medicare taxes (regardless if the amount is bigger than $200,000). If you are self-employed, you pay the combined employee and employer amount of 2.9 percent (3.8% for the portion bigger than $200,000) in Medicare taxes on your net earnings;
 * 5) State income tax withholding;
 * 6) Various local tax withholding, such as city taxes, county taxes, school taxes, state disability, and unemployment insurance.

References include the following publications:


 * Publication 15, (Circular E), Employer's Tax Guide. This publication explains employer's tax responsibilities. It explains the requirements for withholding, depositing, reporting, paying, and correcting employment taxes. It explains the forms any employer must give to its employees, those employees must give to the employer, and those employers must send to the IRS and SSA (Social Security Administration). This guide also has tax tables needed to figure the taxes to withhold from each employee;
 * Publication 15 – A, Employer's Supplemental Tax Guide. This publication supplements Publication 15 (Circular E), Employer's Tax Guide. It contains specialized and detailed employment tax information supplementing the basic information provided in Publication 15 (Circular E);
 * Publication 15-B. Employer's Tax Guide to Fringe Benefits. This publication supplements Publication 15 (Circular E), Employer's Tax Guide, and Publication 15 – A, Employer's Supplemental Tax Guide. This publication contains information about the employment tax treatment of various types of noncash compensation.

In the earlier part we have considered payroll taxes related to employee's side. Now it's the moment to talk about the Employer Payroll Taxes Employers are responsible for paying their portion of payroll taxes. These payroll taxes are an expense over and above the expense of an employee's gross pay. The employer-portion of payroll taxes include the following:


 * 1) Social Security taxes (6.2% up to the annual maximum);
 * 2) Medicare taxes (1.45% of wages);
 * 3) Federal unemployment taxes (FUTA);
 * 4) State unemployment taxes (SUTA).

The Federal Insurance Contributions Act (FICA) and the FICA tax consist of both Social Security and Medicare taxes. As we explained earlier both parties pay half of these taxes. Employees pay half, and employers pay the other half. Social Security and Medicare taxes are paid both by the employees and the employers. In summary together both halves of the FICA taxes add up to 15.3 percent.

Any employer is responsible for paying the employer's share of payroll taxes, for depositing tax withheld from the employees' paychecks, preparing various reconciliation reports, accounting for the payroll expense through their financial reporting, and filing payroll tax returns.