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When it comes to tax payroll, many employees do not have any idea where there money is going. Typically the money that comes out of your check is fairly substantial, so understanding where the money is going is a good idea. Here are the basics of payroll tax and where your money is going.
Federal Taxes
The biggest chunk of money that is going to be withheld from your paycheck in most cases is the Federal tax withholding. This is an amount that is withheld based on the number of exemptions that you claimed on your W-4. This is simply an estimated amount and it will be adjusted when you file your taxes with a refund or an additional bill. If you lower the amount of exemptions, they are going to hold more money out of your check.
State Taxes
In some states, your employer is going to be required to withhold state taxes as well. This is going to be a lower amount of money than what is withheld for Federal taxes. If too much is withheld, you will be able to get part of this back just like with the Federal taxes.
Social Security
Your employer is also required to withhold a certain amount of money from your paycheck for Social Security. As of 2010, your employer has to withhold 6.2 percent of your income for Social Security. They also pay this same amount on your behalf, so this is one of the benefits of being an employee. This tax is only applicable for the first $106, 800 of your salary. If you make more than that, the rest will not be taxed for Social Security.
Medicare
Medicare is something else that taxes will be withheld from your paycheck for. This tax is going to cost you 1.45 percent of your paycheck. This money goes towards funding the national healthcare program that takes care of the elderly and disabled. Your employer also has to match your contribution with this tax as well.
Unemployment Taxes
Your employer is also going to have to pay unemployment tax on your behalf. This amount is not going to directly come out of your check, but it does impact the employer in that it costs them to have you as an employee. For state and federal unemployment taxes, the employer is going to have to pay 6.2 percent of your annual salary. Effectively, they are only going to pay .8 percent because they get to utilize a deduction for the rest.
