You know that your employer withholds payroll taxes from you, but you are not quite sure what a payroll tax is. Aside from the fact that it is mandatory, you may want to know where your payroll tax is going, what it is paying for, and how your employer decides how much to withhold. If possible, you would like to find out whether there are any ways for you to pay less or get back some of the money you have already paid. You may have not realized this, but your employer also pays payroll taxes on your behalf, in addition to the taxes withheld from your check. When you add up all the money that has been withheld from your checks for an entire year together with the money your employer pays on your behalf, you will probably come up with a substantial sum. You should find out where all this cash is going.
In general, every worker in the United States has to pay federal income taxes. In order to guarantee that you pay these taxes, they are usually withheld by your employer in the form of payroll tax. Workers who do not have payroll taxes withheld, like freelancers and the self-employed, are usually hit with a huge tax bill they have to pay every April. Depending upon where you live, your employer may also be withholding state or even city taxes.
Your employer figures out how much money to withhold based upon how much you make and how many dependents you have. When you get a new job, your new boss will make you fill out a W-4 form for the Internal Revenue Service, also known as the IRS. On this form, you will list your address and social security number. You will also get to claim dependents. Dependents are people who are officially depending upon the money you earn in order to live. If you have a stay-at-home spouse or children, these people could be claimed as dependents. Your friend who always needs to borrow cash from you cannot be claimed as a dependent. Usually, the more money you make, the more that will be withheld. The more dependents you have, though, the more you get to keep. You will also answer some questions about whether you are legally blind or a veteran and these things also affect how much cash gets withheld.
State and federal taxes plus social security and Medicare are withheld from your check. Your employer is required to pay matching amounts for social security and Medicare and also pays for state and federal unemployment tax. Social security and Medicare taxes are called FICA taxes. This money is specifically set aside to fund social security, which is a program that supports people who can't work and Medicare, which provides seniors with health care. State and federal taxes go to funding the government and paying for things like police and fire departments, the military, and the court system. Unemployment taxes go to temporarily supporting people who lose their jobs as they look for new work.