How Federal Payroll Taxes Are Calculated On Paycheck
Looking over your paycheck? On the check stub the gross pay looks like a nice number. Equal to the amounts earned for your hard work.. But look over there, the Net Pay is smaller. Wait, that's also the amount listed on the pay line of your check too.. Did federal payroll tax really take that much? Have you ever wondered how your federal payroll tax is calculated? There are 3 payroll taxes that the employee is responsible for. Your Federal Withholding Amount or federal payroll tax is all you, you determined how much to take out when you completed your W-4. Medicare and Social Security are calculated based on a percentage.
Federal Withholding for federal payroll tax
Remember back when you started your employer asked you to fill out some boring paperwork. One of those forms you filled out was your W-4. This is a legal IRS document that determines how much to withhold for your federal withholding based on what you choose. Your federal withholding is the amount withheld to cover your federal payroll tax on your your income taxes at the end of the year.
Your withholding status is determined by if you are married or single and how many dependants you are claiming. While it is not unlawful to claim a lower amount of dependants thus making your withholding amount higher, you should not claim more than allowed. At the end of the year your federal payroll tax will be calculated to determine the actual amount due, you may have a refund, you may owe more.
On the W-4 form there is also an option for extra withholding amount. If you don't mind Uncle Sam earning interest on your money instead of you while waiting for tax time to pay federal payroll tax, you can choose to have more money withheld from your paycheck. This is helpful for those that may have had to pay taxesfederal payroll tax the year before and want to protect themselves with a little cushion for this year.
Using your withholding status, your employers payroll department calculates your withholdingfor your federal payroll tax using either a percentage method or wage bracket method. Both are acceptable and outlined in the Circular E.
Did you know that it was President Harry Truman who started the Medicare idea? President Lyndon Johnson signed the bill, but it was Pres. Truman who first went to congress trying to get a national universal medical plan 20 years prior in 1945. The universal coverage plan was shot down, but medical for those who will be receiving social security was put into law in 1965. Who was Medicare's first receiptiant? President Harry Truman.
You now see this piece of history in your deductions coloum of your paycheck. 1.45% of your gross earnings is deducted to cover medical costs for medicare. There is no limit cap to Medicare
In 1935 Franklin Roosevelt signed the Social Security act putting in force what at the time was only considered a retirement program. Social Security today is no longer meant to be your sole retirement program but a cushion to help when you are no longer able to work.
Social Security also covers those with disabilities unable to work. This program takes on a lot of flack because many believe that the younger generations working today may not have anything to collect from their Social Security when their time comes due to misuse and poor management of the system.
Social Security deducts 6.2% from your all of your paycheck earnings. There is a limit cap. For 2008 Once you reach $102,000 you no longer need to contribute to SS for the rest of the calendar year. So for the majority of you, myself included.. Commence laughing now.
State taxes vary from state to state and to give a run down on each would be fill a book. If you would like to know more I suggest visiting your states Department of Revenue website or to start, do a search for "your states name" unemployment insurance.