Employees are responsible for several payroll taxes, which include:
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Social Security Tax (SS): Social Security tax is a federal tax collected under the Federal Insurance Contributions Act (FICA). It funds the Social Security program, which provides retirement and disability benefits. Both employees and employers contribute to Social Security, with a specific percentage of an employee's earnings withheld for this purpose.
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Medicare Tax (MED): Medicare tax is also collected under FICA and supports the Medicare health insurance program. Similar to Social Security, both employees and employers contribute to Medicare, and a portion of an employee's earnings is withheld to fund this program.
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Federal Income Tax (FIT): Federal income tax is imposed by the federal government on an individual's income. Employees generally have federal income tax withheld from their paychecks based on their income, filing status, and allowances claimed on their W-4 form.
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State Income Tax: State income tax is levied by individual states and may vary depending on the state in which the employee works and resides. The amount withheld is influenced by the state's tax rates and the employee's specific circumstances.
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Applicable Local Taxes for Employees: In some areas, local governments may impose additional income taxes. The specific local taxes an employee may be subject to will depend on their place of employment and residence. The amount withheld for local taxes is determined by the local tax rates and regulations.
Understanding and managing these payroll taxes is essential for employees to comply with tax laws, ensure financial stability, and meet their tax obligations. The exact amounts withheld for Social Security, Medicare, federal income tax, state income tax, and local taxes can vary based on an employee's earnings and the specific tax regulations applicable to their situation.