What are Payroll Taxes?
Payroll taxes are taxes on the wages of employees which are used to fund social programs (e.g. Social Security and Medicare). The burden is on the employer to pay the tax by withholding said tax from employee’s salaries, but the employee is the one who actually pays the tax.
What are the Rates?
For income up to $132,900, a Social Security tax of 6.2% is owed. The rules are different for Medicare. All wages are subject to a Medicare tax of 1.45% unless an individual wage is greater than $200,000 in which there is an additional 0.9% Medicare tax. Additionally, if a couple’s income exceeds $250,000 then they are also subject to the additional Medicare percentage.
Why do you pay into Medicare and Social Security?
While you work, you pay. So, the idea is that once you retire, you receive.
What About Small Business Owners?
Self-employed people pay 12.4% of their earnings to Social Security and 2.9% to Medicare. If income exceeds $200,000 then they also face the Medicare surtax.
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