What Is the Percentage of Federal Taxes Taken out of a Paycheck?

Payroll tax

Payroll taxes are taxes withheld or paid by an employer, for or on behalf of employees. Payroll taxes include federal income tax withholding, state income tax withholding, social security and Medicare taxes, and federal and state unemployment taxes. Taxes paid are based on compensation, which includes all payments on behalf of an employee, such as wages and commissions (except for certain excludable amounts, such as qualified reimbursable business expenses or nontaxable moving expenses).

Employee or independent worker

Before you can determine how payment for your services will be treated in terms of payroll taxes, you must determine whether you are self-employed or an employee for the purposes of the job in question.

Freelancers are people such as lawyers, accountants, architects, contractors, or subcontractors who pursue an independent profession or trade, in which they offer their services to the public. However, whether these people are actually employees or self-employed depends on the facts of each particular case. Traditionally, anyone who provides services is an employee, if the company or person paying for those services (the “payer”) can control the details of how the services are to be performed.

Facts indicative of the employment relationship include:

  • Instructions on when, where, and how to perform the work;
  • Training provided by the payer;
  • Reimbursement of business expenses;
  • Pay by the hour, week or month; and
  • Payment of employee-type benefits, such as insurance,
  • vacation and retirement benefits.

Facts indicative of an independent contractor relationship include:

  • Emphasis on results;
  • Independent training;
  • Unreimbursed business expenses;
  • Worker investment in work facilities;
  • Payment for the work instead of for the period of time; and
  • The degree to which the worker can make a profit or loss on the transaction.

Payroll taxes for employees

If a person is an employee, the employer must withhold payroll taxes, including federal and state income taxes. The amount withheld depends on the number of wages paid, the filing status (ie, single or married), the number of pay periods, and the number of allowances claimed by the employee. Each employee is required to provide the employer with a signed Form W-4, indicating the filing status and the number of personal allowances claimed. The employee completes a worksheet provided with Form W-4, to help him calculate the correct number of personal allowances. An employee can claim fewer personal allowances, but cannot claim more because the employee will be underpaid, and will be subject to underpayment penalties.

social security taxes

Both the employer and the employee are required to pay social security taxes. The employer pays 6.2% of the taxable wage base and withholds from the employee 6.2% of the fixed taxable wage base. Both the employer and the employee must also pay Medicare taxes. The employer pays 1.45% of wages and the employer withholds another 1.45% from the employee. Salaries for social security purposes include 401(k) contributions and deferred compensation.

The monthly Payroll Tax Declaration consists of presenting online or in-person the total number of workers that were had during the monthly period to be declared, the total expenditures paid to that total number of workers, and the applicable exempt expenditures, from this information, will be calculated the base of the tax and later the rate of 2% will be applied (percentage corresponding to the rate to be paid in accordance with the current Tax Law of the State of Aguascalientes), the declaration and corresponding payment are generated for compliance. 

unemployment taxes

Employers must also pay federal and, where applicable, state unemployment taxes. The tax applies to the first $7,000 of wages paid to each employee. For state unemployment taxes, the tax rate and wage base will differ from state to state. However, an employer may take a federal unemployment credit for amounts paid into state unemployment funds, up to a fixed percentage of taxable wages.

By aamritri

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