Payroll Taxes

Payroll Taxes

Payroll taxes are the taxes that employers are required by law to withhold from employees paychecks based on the employee’s compensation. In the US employers must collect from employees both federal and state income payroll taxes as well as Social Security and Medicare taxes. Employers must also pay a matching amount of Social Security and Medicare taxes based on the amount withheld from employees and also state and federal unemployment taxes. This paper will show the similarities and differences between the payroll taxes of the states of Maryland and Virginia.

Federal income taxes are the federal taxes employees pay based on their annual earnings. The amount of taxes withheld is based on the information from an employee’s W4 form and their wages. The employer must use the federal tax rate tables to determine the amount of federal income taxes to withhold from employees paychecks.

The second federal payroll taxes that are withheld from employees pay are FICA taxes, Social Security and Medicare taxes. Social Security taxes are paid at a rate of 6.2% up to the wage limit of $113,700. The Medicare tax does not have a wage limit and is taxed at a rate of 1.45%. ("Income Tax Withholding," 2013) Employers must pay a matching amount of FICA taxes withheld from their employee’s wages.

The third federal payroll tax that employers must pay but not employees is the Federal Unemployment Tax or FUTA. The FUTA tax percentage is 0.8 percent of the first $7,000 of wages per year or $56. (Murray, 2013)

Employers must pay federal income taxes, social security tax, and Medicare taxes by filing a quarterly employer tax return. The FUTA tax is paid annually on form 940. The amount of federal payroll taxes paid by employers is the same for both Maryland and Virginia.

Unlike federal income tax rates, state individual income tax rates vary from state to state. There are 9 states that don’t have a state income tax and 7 states that have a flat state...