We, Yahoo, are part of the Yahoo family of brands. Show
By clicking ‘Accept all’ you agree that Yahoo and our partners will process your personal information, and use technologies such as cookies, to display personalised ads and content, for ad and content measurement, audience insights, and product development. The personal information that may be used
Click ‘Manage settings’ for more information and to manage your choices. You can change your choices at any time by visiting your privacy controls. Find out more about how we use your information in our privacy policy and cookie policy. Payroll taxes, including FICA tax or withholding tax, are what your employer deducts from your pay and sends to the IRS, state or other tax authority on your behalf. Here are the key factors, and why your tax withholding is important to monitor. What is FICA tax?FICA tax includes a 6.2% Social Security tax and 1.45% Medicare tax on earnings. In 2022, only the first $147,000 of earnings are subject to the Social Security tax. A 0.9% Medicare tax may apply to earnings over $200,000 for single filers/$250,000 for joint filers. What is payroll tax? Are FICA tax and payroll tax the same thing?FICA is often referred to as payroll tax because typically employers deduct FICA tax from employee paychecks and remit the money to the IRS on behalf of the employee. FICA stands for Federal Insurance Contributions Act. 2021-2022 FICA tax rates and limits
What is withholding tax? How does a withholding tax work?A withholding tax is an income tax that a payer (typically an employer) remits on a payee's behalf (typically an employee). The payer deducts, or withholds, the tax from the payee's income. Here's a breakdown of the taxes that might come out of your paycheck.
How FICA tax or withholding tax are calculatedThe amount of tax your employer withholds from your check largely depends on what you put on your Form W-4, which you probably filled out when you started your job. Here are some things to know:
Other payroll tax items you may hear about
Why do I have to pay FICA tax?Employers have to withhold taxes from employee paychecks because taxes are a pay-as-you-go arrangement in the United States. When you earn money, the IRS wants its cut as soon as possible. Some people are “exempt workers,” which means they elect not to have federal income tax withheld from their paychecks. Social Security and Medicare taxes will still come out of their checks, though. Typically, you become exempt from withholding only if two things are true:
Is it better to withhold taxes?Remember, one of the big reasons you file a tax return is to calculate the income tax on all of your taxable income for the year and see how much of that tax you’ve already paid via withholding tax. If it turns out you’ve overpaid, you’ll probably get a tax refund. If it turns out you’ve underpaid, you’ll have a tax bill to pay. If you ended up with a huge tax bill this year and don’t want another, you can use Form W-4 to increase your tax withholding. That’ll help you owe less (or nothing) next year. If you got a huge tax refund, consider using Form W-4 to reduce your tax withholding. You’re giving the government a free loan and — even worse — you might be needlessly living on less of your paycheck all year. It may feel great to get a tax refund from the IRS, but think of how life might’ve been last year if you’d had that extra money when you needed it for groceries, overdue bills, getting the car fixed, paying off a credit card or investing.
|