Understanding Employment Taxes Internal Revenue Service

The employee is the one who gets to determine whether or not taxes will be withheld from their paycheck and how much. If they choose to, employees can receive their entire paycheck and then owe taxes at the end of the year. However, most employees choose to have funds withheld to avoid a large tax bill every year. Payroll taxes look different from nation to nation, but a simple definition is that these taxes are imposed on either employees or employers (or both!). Typically, the amount paid by the employer or the employee is based on a percentage of the employee’s salary.

That’s why many small-business owners take the job off their plate and get payroll software or a professional employer organization (PEO) to do the work for them. Let’s return to the employee in our previous example who earns $225,000 per year. Now assume that the employee is married and filing jointly, but the spouse doesn’t earn any wages. You must start deducting the Medicare surtax when the employee’s earnings reach $200,000, but the couple falls beneath the $250,000 threshold for married, joint filers.

Who Pays Payroll Taxes?

States are responsible for paying unemployment benefits to eligible workers who are involuntarily terminated. The rate employers must pay is based on their claims experience. The more claims made by former employees, the higher the tax rate.

For tax years 2012 and subsequent, the credit is nonrefundable, with a maximum amount (dollar limitation) of $14,300 per child for 2019. For more information see Tax Topic No. 607, Adoption Credit which payroll taxes are the employees responsibility and which are the employers responsibility and Adoption Assistance Programs. Twice a month we share relevant and timely blog articles and other resources. We believe everyone should be able to make financial decisions with confidence.