U.S. federal payroll taxes include:
- Taxes withheld from employee pay for federal income taxes(FIT) owed by the employees. The amount of FIT is determined by information employees provide on Form W-4 at hire. This form can be changed by the employee at any time and as often as the employee wishes.
- Taxes paid for social security and Medicare, called FICA taxes (FICA stands for "Federal Insurance Contributions Act"). Employees and employers share these FICA taxes, with the employer deducting the employee share (one-half the total due) from employee wages/salaries, and the employer paying the other half.
For 2011, the employee portion of social security tax has been reduced 2%, to 4.2%. Be sure to adjust your withholding calculation to take this change into account. This change does not change the employer portion of the social security tax. In addition, the payroll tax cut has been extended for two months in 2012, through the end of February.
The employee tax rate for social security is 6.2% (4.2% for 2011 and January and February of 2012). The employer tax rate for social security is also 6.2% (12.4% total). The Social Security portion of the tax is capped each year at a maximum wages subject to Social Security. The employee tax rate for Medicare is 1.45% (amount withheld). The employer tax rate for Medicare tax is also 1.45% (2.9% total). There is no wage limit for Medicare tax; all covered wages are subject to Medicare tax.
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