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FutureStarrWhat Is a Payroll Taxor
A payroll tax is a tax that is paid by an employer on behalf of an employee, for social security and Medicare benefits, when a worker earns money.
In addition to income taxes, payroll taxes are collected by federal authorities and some state governments in many countries, including the U.S. These payroll tax deductions are itemized on an employee's pay stub. The itemized list notes how much is withheld for federal, state, and municipal income taxes, as well as the amounts collected for Medicare and Social Security payments.
Employers bear the primary responsibility for funding unemployment insurance. If they lay off employees, those employees are entitled to unemployment benefits. The rate of unemployment insurance the employer will pay varies by industry, state, and federal fees. Some states require employees to contribute to unemployment and disability insurance. (Source: www.investopedia.com)
Federal payroll taxes cover Social Security and Medicare contributions, which constitute the Federal Insurance Contributions Act (FICA) tax. An employee pays 7.65%. The premise of Social Security and Medicare is that you pay into them during your working years in order to qualify to withdraw these funds after retiring or under certain medical circumstances. As of 2021, the rate is divided between a 6.2% deduction for Social Security on a maximum salary of $142,800 ($147,000 for the 2022 tax year) and a 1.45% share for Medicare.
The Northwest Territories in Canada applies a payroll tax of 2% to all employees. It is an example of the second type of payroll tax, but unlike in other jurisdictions it is paid directly by employees rather than employers. Unlike the first type of payroll tax as it is applied in Canada, though, there is no basic personal exemption below which employees are not required to pay the tax. (Source: en.wikipedia.org)