Employment and Taxes
Created by FindLaw's team of legal writers and editors | Last reviewed June 20, 2016
Whether it's at home or in the workplace, taxes can be a confusing topic. On the job, taxes may seem at first glance to be fairly straightforward, as income tax is often automatically deducted from the paycheck. But taxes at work can be a minefield for some types of employees, including those who are self-employed. It can be difficult to know the difference between a business expense or a normal expense, and whether to estimate taxes or not. Below you can find information on payroll taxes, including classifications and withholding, as well as information on how self-employed individuals go about handling their taxes.
Payroll taxes are withheld or paid by an employer on behalf of their employees and may include federal and state income tax withholding, social security and Medicare taxes, and state and federal unemployment taxes. Payroll taxes are typically not paid for independent contractors. An independent contractor is usually someone in an independent trade or profession who offers their services to the public. Independent contractors usually control how and when their work is done, while employers exercise much more control over the day-to-day activity of employees.
Independent contractors or the self-employed may be required to make estimated tax payments periodically in the course of the year. These estimated tax payments are intended to serve the same purpose as the payroll tax withholding employers apply to their payment of employees. Estimated tax payments take place quarterly.
Employers must provide each employee with a Form W2, the annual summary of the wages paid and taxes withheld. An employer must issue this document to their employees before January 31 of the year following that for which taxes will be filed. The document is also filed with the IRS and state tax authorities. This form is due to the employee
In some situations an employer can be compelled to withhold a portion of an employee's earnings to repay a debt the employee owes another party. Wage garnishment may be required in situations involving back taxes, child support, student loans, personal loans, or debts arising from court judgments. Wage garnishment only happens pursuant to a court order. If approved, the court issues an order to the debtor's employer commanding them to withhold a certain amount of their paycheck, along with a letter and additional instructions. The employer must then notify the debtor in writing before commencing garnishment and sending the garnished amounts to the creditor in question.
There are some limited protections provided employees who are subject to wage garnishment. The Consumer Credit Protection Act (CCPA) limits the garnishment sought in federal court, which limits the amount to 25% of the debtor's disposable earnings each week, though back payment for child support may result in garnishment of as much as 60% of disposable income. Disposable income is defined as income minus required tax deductions. Also, employees cannot be fired because their wages are garnished, though those garnished for two or more debts can be fired without repercussion for the employer.
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