Employers are required to deduct certain taxes from an employee's payroll check each pay period. These are also referred to as involuntary deductions as the employee cannot choose to stop the deductions. The employer must remit amounts deducted from an employee for taxes to the appropriate taxing agency. In addition, the employer must file reports that agree with the W-2 forms issued to employees. This helps to guarantee that employees receive the proper credit for all of their deductions.
Social Security (FICA)
Social Security taxes are deducted on all wages, commissions, tips or other earnings. The federal government establishes the percentages and earnings limits. For 2010, the rate is 12.4 percent, with half deducted from the employee and the other half paid by the employer. The limit for 2010 is $106,800, which means that all earnings in excess of that amount are not subject to Social Security taxes.
Medicare taxes are another federal tax that requires that half be deducted from the employee while the employer pays half. Unlike Social Security taxes, there is no earning limit applied to Medicare taxes, so all wages and other earnings are subject to the tax. For 2010, the rate is 2.9 percent total, translating to a 1.45 percent deduction from the employee's paycheck.
Federal Withholding (FIT)
Federal withholding taxes are deductions made throughout the year that will be applied to the employee's tax liability when he files his return. If more taxes are deducted than are owed, the employee will receive a refund for the difference. The amounts deducted are based on the W-4 form submitted by the employee. On this form, the employee states whether he is single, married or married but prefers deductions be based on the higher rate for singles. He then enters the number of deductions he can legally claim. Based on this data, the employer refers to the tax tables issued by the Internal Revenue Service to determine the amount to be deducted.
State Withholding (SIT)
State withholding taxes are similar to federal withholding except they are to cover the employee's liability for her state income taxes. Like the federal withholding taxes, these are based on the employee's W-4 form, but the tax tables used are supplied by the individual states. Excess taxes withheld will be refunded to the employee when she files her annual return.
If the employee lives or works in a city or county that assesses income taxes, the employer must deduct appropriate taxes from the employee's earnings. These deductions are taken throughout the year and any excess is refunded when the employee files his local return.
- Internal Revenue Service: Publication 15 (Circular E) Employer's Tax Guide
- State of Pennsylvania: Earned Income Tax
- Oklahoma State University: Current Payroll Tax Deductions
- Internal Revenue Service: Form W-4 (2010)
- Internal Revenue Service. "About Form W-2, Wage and Tax Statement." Accessed Jan. 22, 2020.
- Internal Revenue Service. "Self-Employed Individuals Tax Center." Accessed Feb. 6, 2020.
- Internal Revenue Service. "General Instructions for Forms W-2 and W-3 (2019)." Accessed Jan. 22, 2020.
- Internal Revenue Service. "2020 Form W-2," Page 2. Accessed Jan. 24, 2020.
- Internal Revenue Service. "Topic No. 751 Social Security and Medicare Withholding Rates." Accessed Jan. 22, 2020.
- Internal Revenue Service. "Prior Year Products." Accessed Feb. 6, 2020.
- Internal Revenue Service. "About Form W-4, Employee's Withholding Certificate." Accessed Feb. 6, 2020.
- Internal Revenue Service. "Forms and Associated Taxes for Independent Contractors." Accessed Jan. 22, 2020.
- U.S. Department of Education. "1098-E Tax Form." Accessed Jan. 22, 2020.
Jeffrey Joyner has had numerous articles published on the Internet covering a wide range of topics. He studied electrical engineering after a tour of duty in the military, then became a freelance computer programmer for several years before settling on a career as a writer.