Social Security Payroll Tax Law

Social Security Payroll Tax Law stated that Social Security benefits are financed primarily through dedicated payroll taxes paid by workers and their employers. Employees and employers split the 15.30 percent payroll tax equally, with employers paying 7.65 percent of an employee's income, and the employee kicking in the same. Self-employed individuals pay the entire 15.30 percent payroll tax.

Payroll taxes are the state and federal taxes that you, as an employer, are required to withhold and/or to pay on behalf of your employees. Social Security Payroll Tax Law requires you to withhold state and federal income taxes as well as social security and Medicare taxes from your employees' wages. Social Security Payroll Tax Law also required you to pay a matching amount of social security and Medicare taxes for your employees and to pay State and Federal unemployment tax.

Have each new employee complete IRS form W-4. You will use this form to calculate the amount of your social security payroll tax to withhold from the employee's wages. Most of the states have payroll tax structures that are based on the federal system, so you will use the W-4 to calculate the amount of state payroll tax to withhold as well.

Social security and Medicare taxes, also known as FICA taxes must be withheld from your employees' wages according to the Social Security Payroll Tax Law. As an employer, you must also pay a matching amount of FICA taxes for your employees. Currently the social security tax rate is 6.2%. You are required to withhold 6.2% of an employee's wages for social security taxes and to pay a matching amount in social security taxes until the employee reaches the wage base for the year. The wage base for social security tax is $76,000 for the year 2000. Once that amount is earned, neither the employee nor the employer owes any social security tax. These are required by the Social Security Payroll Tax Law.

The Social Security Medicare tax rate is 2.9% for the employee and the employer. You will withhold 1.45% of an employee's wages and pay a matching amount for Social Security Medicare tax. There is no wage base for the Social Security Medicare portion of the FICA tax. Both the employer and the employee continue to pay Social Security Medicare tax, no matter how much is earned.

The Social Security Payroll Tax Law also stated for FUTA that the employer also must pay State and Federal Unemployment Taxes (SUTA and FUTA). The FUTA rate is 6.2 %, but you can take a credit of up to 5.4% for SUTA taxes that you pay. If you are eligible for the maximum credit your FUTA rate will be 0.8%. The wage base for FUTA is $7,000. You will stop paying FUTA for each employee once his or her wages exceed $7,000 for the year. You will need to check with your state about SUTA tax rates and the wage base. Generally, your SUTA tax rate is based on the amount of unemployment claims that are filed by employees that you have terminated. When your business is new, your SUTA tax rate starts at the maximum and declines if you build a history of few claims.

For information on Social Security Payroll Tax Law and Federal payroll tax requirements, check out IRS publication 15, Circular E. For information on State payroll tax requirements, contact your state's taxation and revenue department.
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