{"id":357869,"date":"2016-04-04T10:45:29","date_gmt":"2016-04-04T15:45:29","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/employment\/wages-and-benefits\/payroll-taxes.html"},"modified":"2025-03-25T13:04:00","modified_gmt":"2025-03-25T18:04:00","slug":"payroll-taxes","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/employment\/wages-and-benefits\/payroll-taxes.html","title":{"rendered":"Payroll Taxes: What Employees Should Know"},"content":{"rendered":"\n<div class=\"wp-container-core-columns-is-layout-9d6595d7 fl-sectionWithSidebar fl-container fl-flex fl-flex-wrap fl-gap30\">\n    \n    <div class=\"fl-page-articles fl-section-main fl-section-main-full-width\">\n        <h1 class=\"fl-no-margin-top\">Payroll Taxes: What Employees Should Know<\/h1>\n<section class=\"fl-gutenberg-byline\">\n    <div class=\"fl-gutenberg-byline-content\">\n                    By <a href=\"https:\/\/www.findlaw.com\/company\/our-team\/olivia-wathne-jd\/\">Olivia Wathne, J.D.<\/a> | Legally reviewed by <a\n                href=\"https:\/\/www.findlaw.com\/company\/our-team\/melissa-bender-esq\/\">Melissa Bender, Esq.<\/a>\n                | Last updated\n        <time>\n                            March 25, 2025\n                    <\/time>\n    <\/div>\n\n    \n    <details class=\"fl-gutenberg-byline-toggle fl-gutenberg-byline-legally-reviewed\">\n        <summary>\n            <i class=\"fl-gutenberg-byline-icon\" aria-hidden=\"true\"><\/i>\n            Legally Reviewed\n        <\/summary>\n\n        <div class=\"fl-gutenberg-byline-toggle-content\">\n            <p><em>This article has been written and reviewed for legal accuracy, clarity, and style by <a href=\"https:\/\/www.findlaw.com\/company\/our-team.html\">FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with <a href=\"https:\/\/www.findlaw.com\/company\/company-history\/editorial-policy.html\">our editorial standards<\/a>.<\/em><\/p>\n\n        <\/div>\n    <\/details>\n\n    <details class=\"fl-gutenberg-byline-toggle fl-gutenberg-byline-fast-checked\">\n        <summary>\n            <i class=\"fl-gutenberg-byline-icon\" aria-hidden=\"true\"><\/i>\n            Fact-Checked\n        <\/summary>\n\n        <div class=\"fl-gutenberg-byline-toggle-content\">\n            <p><em>The last updated date refers to the last time this article was reviewed by FindLaw or one of our <a href=\"https:\/\/www.findlaw.com\/company\/our-team\/contributing-authors.html\">contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please <a href=\"https:\/\/lawyers.findlaw.com\/?fli=bylinelink\" target=\"_blank\" rel=\"noopener\">contact an attorney in your area<\/a>.<\/em><\/p>\n\n        <\/div>\n    <\/details>\n<\/section>\n    <div class=\"fl-callout-text article-blockquote\">\n        <p>Payroll taxes are fundamental in defining the financial obligations within the employer-employee relationship, ensuring accurate wage allocation and adherence to tax regulations. It&#8217;s crucial for employees to understand these withholdings to manage their earnings and tax liabilities effectively.<\/p>\n\n    <\/div>\n\n<p>Payroll taxes are taxes withheld or paid by an employer for or on behalf of employees. Payroll taxes include:<\/p>\n<ul>\n<li>Federal income tax withholding<\/li>\n<li>State income tax withholding<\/li>\n<li>Social Security taxes<\/li>\n<li>Medicare taxes<\/li>\n<li>Federal and state unemployment taxes<\/li>\n<\/ul>\n<p>You lose a significant portion of your employee pay to payroll taxes. A <a href=\"https:\/\/lawyers.findlaw.com\/taxation-law\/\" target=\"_blank\" rel=\"noopener\">local tax attorney<\/a> can help you assess your financial situation and understand your tax liabilities.<\/p>\n<p>It&#8217;s critical that your employer withholds and reports employment taxes in accordance with federal law. This helps ensure your tax obligations are met. <a href=\"https:\/\/www.irs.gov\/\" target=\"_blank\" rel=\"noopener\">The Internal Revenue Service<\/a> (IRS)&nbsp;and the&nbsp;<a href=\"https:\/\/www.dol.gov\/\" target=\"_blank\" rel=\"noopener\">Department of Labor<\/a> regulate these processes.<\/p>\n<p>This article will help you understand the payroll taxes that come out of your paycheck. Learn about the importance of your worker categorization, types of payroll taxes, tax forms, and more.<\/p>\n<h2>Employee or Independent Contractor?<\/h2>\n<p>Determining the tax treatment of service payments involves first identifying whether one is categorized as an&nbsp;<a href=\"https:\/\/www.findlaw.com\/employment\/hiring-process\/independent-contractors-overview.html\">independent contractor<\/a>&nbsp;or an employee. Independent contractors operate independently and offer services to the public. Traditionally, individuals performing services are deemed employees if the payor can control the details of service execution.<\/p>\n<p>Small business owners and the&nbsp;<a href=\"https:\/\/www.findlaw.com\/employment\/wages-and-benefits\/self-employment-taxes-q-a.html\">self-employed<\/a>&nbsp;must be mindful of this classification. It directly impacts their tax obligations.<\/p>\n<p>Your tax rate, tax return, and other financial considerations will vary depending on whether you are an employee or an independent contractor. Self-employed individuals, falling into the latter category, bear <a href=\"https:\/\/www.findlaw.com\/smallbusiness\/business-taxes\/self-employment-tax.html\">unique tax responsibilities<\/a> as taxpayers. Small businesses, in particular, must navigate these distinctions to ensure compliance with tax regulations.<\/p>\n<p>Facts indicative of an <a href=\"https:\/\/www.findlaw.com\/employment\/hiring-process\/being-an-independent-contractor-vs-employee.html\">employment relationship<\/a> include:<\/p>\n<ul>\n<li>Instructions as to when, where, and how to perform the work<\/li>\n<li>Payor-provided training<\/li>\n<li>Reimbursement of business expenses<\/li>\n<li>Payment by the hour, week, or month<\/li>\n<li>Payment of employee-type benefits such as insurance, vacation, and retirement benefits<\/li>\n<\/ul>\n<p>Facts indicative of an <a href=\"https:\/\/www.findlaw.com\/employment\/hiring-process\/being-an-independent-contractor-vs-employee.html\">independent contractor<\/a> relationship include:<\/p>\n<ul>\n<li>Emphasis on results<\/li>\n<li>Independent training<\/li>\n<li>Unreimbursed business expenses<\/li>\n<li>Investment by the worker in work facilities<\/li>\n<li>Payment by the job rather than by time period<\/li>\n<li>The extent to which the worker can realize a profit or loss on the transaction<\/li>\n<\/ul>\n<h2>Payroll Taxes for Employees<\/h2>\n<p>If an individual is an employee, the employer must withhold payroll taxes. Employers are authorized to deduct specific items from an employee&#8217;s paycheck. They can deduct taxes, insurance premiums (such as health insurance and&nbsp;<a href=\"https:\/\/www.findlaw.com\/injury\/accident-injury-law\/what-is-disability-insurance.html\">disability insurance<\/a>), and union dues. The amount withheld depends on the following:<\/p>\n<ul>\n<li>Amount of wages paid<\/li>\n<li>Filing status (i.e., single or married)<\/li>\n<li>Number of pay periods<\/li>\n<li>Number of allowances claimed by the employee<\/li>\n<\/ul>\n<p>In addition to income taxes, employers may withhold for various insurance coverages, like unemployment insurance and&nbsp;<a href=\"https:\/\/www.findlaw.com\/injury\/workers-compensation.html\">workers&#8217; compensation.<\/a><\/p>\n<p>Employees are required to give the employer a signed&nbsp;<a href=\"https:\/\/www.irs.gov\/pub\/irs-pdf\/fw4.pdf\" target=\"_blank\" rel=\"noopener\">Form W-4<\/a>. This form indicates the filing status and number of personal allowances claimed.<\/p>\n<p>The employee then completes a worksheet provided with W-4 form. The worksheet assists with calculating the correct number of personal allowances. An employee can claim fewer personal allowances but can&#8217;t claim more.<\/p>\n<h2>Social Security and Medicare Taxes<\/h2>\n<p>The obligation to pay&nbsp;<a href=\"https:\/\/corporate.findlaw.com\/law-library\/social-security-your-taxes-amp-130-amp-133-what-you-re.html\" target=\"_blank\" rel=\"noopener\">social security taxes<\/a>&nbsp;is shared between the employer and the employee. Each contributes to this vital program overseen by the&nbsp;<a href=\"https:\/\/www.ssa.gov\/\" target=\"_blank\" rel=\"noopener\">Social Security Administration.<\/a>&nbsp;The employer pays 6.2% of the taxable wage base and withholds 6.2% of a fixed taxable wage base from the employee.<\/p>\n<p>Both the employer and employee are also required to pay Medicare taxes. The employer pays 1.45% of wages and the employer withholds another 1.45% from the employee. Wages for social security purposes include 401(k) contributions and deferred compensation.<\/p>\n<p>These contributions are sometimes called FICA taxes because they are mandated under the <a href=\"https:\/\/www.ssa.gov\/people\/materials\/pdfs\/EN-05-10297.pdf\" target=\"_blank\" rel=\"noopener\">Federal Insurance Contributions Act<\/a>. These tax payments ensure employees become eligible for future Social Security and Medicare benefits.<\/p>\n<h2>State and Federal Unemployment Taxes<\/h2>\n<p>Employers also must pay federal and, where applicable, state <a href=\"https:\/\/www.findlaw.com\/employment\/losing-a-job\/unemployment-insurance-overview.html\">unemployment taxes<\/a>. The tax applies to the first $7,000 of wages paid to each employee. For state unemployment taxes, the rate of tax and wage base will differ from state to state. But, an employer can take a credit against federal unemployment for amounts paid to state unemployment funds up to a fixed percentage of taxable wages.<\/p>\n<h2>IRS Form W-2<\/h2>\n<p>Employers are required to provide each employee with a&nbsp;<a href=\"https:\/\/www.irs.gov\/forms-pubs\/about-form-w-2\" target=\"_blank\" rel=\"noopener\">Form W-2.<\/a>&nbsp;This form is an annual summary of wages paid and taxes withheld. The employer also files Form W-2 with the Internal Revenue Service (IRS) and state taxing departments.<\/p>\n<p>The form is due to the employee by January 31 of the year following that for which income taxes will be filed. For employees filing income taxes for tax year 2025, employers must provide a Form W-2 by January 31, 2026.<\/p>\n<h2>Estimating Your Payroll Taxes<\/h2>\n<p>You have likely wondered how much of your paycheck is deducted for payroll taxes. As discussed above, the total withholding amount depends on several factors, including pay periods, filing status, amount of wages, and allowances.<\/p>\n<p>Income taxes comprise the most significant portion of the tax deductions from your paycheck. This amount varies depending on your tax bracket with the federal government. Federal tax brackets <a href=\"https:\/\/www.irs.gov\/filing\/federal-income-tax-rates-and-brackets\" target=\"_blank\" rel=\"noopener\">range from 10% to 37%<\/a>. In short\u2014the more you earn, the more you\u2019ll pay in income taxes.<\/p>\n<p>There are several \u201cW-4 calculators\u201d online that can help you estimate how much you will pay in payroll taxes. The&nbsp;IRS&nbsp;provides a&nbsp;<a href=\"https:\/\/www.irs.gov\/individuals\/tax-withholding-estimator\" target=\"_blank\" rel=\"noopener\">Tax Withholding&nbsp;Estimator<\/a>&nbsp;tool that shows how tax withholding&nbsp;affects your refund,&nbsp;net pay,&nbsp;and what you may owe when you file your taxes.<\/p>\n<h2>Get Legal Help Understanding Your Payroll Taxes<\/h2>\n<p>If you find yourself facing challenges with your employer regarding payroll tax withholdings or wage garnishment, you should seek the assistance of an attorney specializing in labor law. An attorney can provide valuable legal advice and take appropriate action to address any concerns related to your wages and payroll deduction. Contact an<a href=\"https:\/\/lawyers.findlaw.com\/employment-law-employee\/?fli-dcta\" target=\"_blank\" rel=\"noopener\">&nbsp;employment law attorney near you<\/a>&nbsp;today.<\/p>\n<div class=\"was-this-helpful\">\n    <div\n            class=\"was-this-helpful__question-container\"\n            aria-labelledby=\"was-this-helpful__question\"\n            role=\"group\"\n    >\n        <span\n                id=\"was-this-helpful__question\"\n                class=\"was-this-helpful__question fl-text-lg-bold\"\n        >Was this helpful?<\/span>\n        <button\n                class=\"was-this-helpful__button fl-text-sm\"\n                aria-label=\"Yes\"\n                value=\"yes\"\n        >\n            <span class=\"was-this-helpful__button-text fl-text-bold\">Yes<\/span>\n            <i class=\"was-this-helpful__button-icon\">\n                <svg width=\"22\" height=\"22\" viewBox=\"0 0 22 22\" fill=\"none\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\">\n                   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