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Payroll taxes are taxes taken out of your gross pay on your
paycheck, or they are taxes paid by your employer. The former are referred to
as employee paid taxes and the latter are referred to as employer paid taxes.
Some taxes are unavoidable, while others may be reduced depending upon the
number of exemptions that you claim. There are some taxes that are paid just to
the state while others are paid to the Federal Government. Olympic provides a
quick review of each tax below.
The Federal Income Tax is an employee paid tax. Federal Income Taxes are paid
by your employer to the Federal Government on your behalf. Taxes are deducted
from your check based on a projected tax burden that you would have at the end
of the year given your current rate of pay and the number of deductions your
W-4 claims. Your employer deducts these taxes from your paycheck and sends the
money to the Federal Government every pay period. In January of every year your
employer reports how much each employee paid in Federal Income Tax to the
Federal Government. The employer then sends you a W-2 outlining how much you
made for the previous calendar year and how much you paid in to the various
state and federal taxes.
The State Income Tax is an employee paid tax. State Income Taxes are paid by
your employer to the State Government on your behalf. Taxes are deducted from
your check based on a projected tax burden that you would have at the end of
the year given your current rate of pay and the number of deductions you W-4
claims. Your employer deducts these taxes from your paycheck and sends the
money to the Federal Government every pay period. In California, every quarter
your employer informs the State of how much each employee has made that quarter
and how much they paid in taxes. At the end of January, the employer sends you
a W-2 which outlines how much you made for the previous calendar year for the
state you reside in and how much you paid in to the various state and federal
taxes.
FICA is both an employee and employer paid tax. FICA is composed of two
elements: Social Security and Medicare. The tax rate for Social Security for
tax year 2010 is 6.2% on gross wages up to $106,800. Both the employee and
employer pay this tax, so the combined tax burden is 12.4%. The tax rate for
Medicare for tax year 2010 is 1.45% on all wages. Both the employee and
employer pay this tax, so the combined tax burden is 2.9%.
Unemployment tax is an employer paid tax. There are two components to the tax:
Federal Unemployment Tax (FUTA) and State Unemployment Tax (SUTA). FUTA is paid
to the Federal Government to administer the unemployment policies of the United
States. SUTA is paid to the states and it eventually is used to pay for
benefits. For tax year 2010, the FUTA tax rate is fixed at .8% of the first
$7,000 in gross wages. For tax year 2010, SUTA varies from state to state and
company to company. For California the UI taxable wage limit for 2010 is $7,000
per employee, per year. The UI tax rate for experienced employers varies based
on each employer's experience and the balance in the UI Fund.
State Disability Tax is an employee paid tax. The 2010 SDI tax rate is 1.1%
The employee pays the tax on the first $93,316 in wages for the year at a rate
of 1.1% for a maximum tax of $1,026.48.
Social Security
Administration
IRS
Employer Tax Guide (PDF-256K)
California
Emp. Dev. Dept
California
State - Taxes Franchise Tax Board
Internal Revenue
Service
CA Paycheck Tax Information
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