In: Accounting
Identify and explain the types of employer payroll taxes.
There are 4 types of taxes paid by an employer for his payroll purpose. These are as below:
No.1) Social security tax: This is the retirement and disability benefits of employees. Both employer and employee contribute to this fund equally by withholding tax. The rate of tax is 6.2% on the first $118,500 gross salary of an employee (as per 2016 tax structure).
No.2) Medicare tax: This is the medical benefit of employees. Both employer and employee contribute to this fund equally by withholding tax. The rate of tax is 1.45% on the whole gross salary (as per 2016 tax structure).
No.3) FUTA: This is the unemployment tax to be paid to the Federal government by the employer only. The rate of tax varies from year to year. In the year 2017 the rate was 0.6% on the first $7,000 salary of an employee. Therefore, the maximum amount of FUTA for an employee is (7,000 × 0.6% =) $42.
No.4) SUTA: This is also an unemployment tax but paid to the state. In the year 2017 the rate was 6% on the first $7,000 salary of an employee. Therefore, the maximum amount of FUTA for an employee is (7,000 × 5.6% =) $392.