What is the difference between federal income tax withheld and social security tax withheld?

Generally, an employer must withhold Social Security and Medicare taxes from employee salaries and pay the employer part of these taxes. Federal income tax withholding is divided into two parts, one part for Social Security and one part for Medicare. State withholding depends on the state in which you live and the programs to which you allocate your tax money. Withholding taxes is included in the scope of being an employer.

Employment taxes can be divided into payroll taxes and income taxes. Most people use the terms interchangeably. However, when you hear about payroll tax deferral, you probably want to know the exact difference between payroll tax and, in general, every time the term self-employment tax is used, it only refers to Social Security and Medicare taxes and not to any other tax (such as income tax). Social Security and Medicare taxes have different rates and only social security taxes have a wage base limit.

Employers declare and pay FUTA taxes separately from federal income tax and Social Security and Medicare taxes. While income taxes go to a general government fund, payroll taxes go specifically to Social Security and Medicare funds. To determine how much tax you should withhold, use the employee's Form W-4, the employee's withholding certificate, the appropriate method, and the corresponding withholding table described in Publication 15-T, Federal Income Tax Withholding Methods. The government will send you a tax refund if more money was withheld from you than you should have paid in taxes at the end of the year.

See Publication 15 and Publication 15-A, Supplemental Tax Guide for Employers, for more information on the FUTA tax. Determine the amount of Social Security and Medicare tax withholding by multiplying each payment by the employee tax rate. Payroll tax consists of Social Security and Medicare taxes, also known as Federal Insurance Contributions Act (FICA) taxes. The self-employment tax (SE tax) is a Social Security and Medicare tax that applies primarily to people who are self-employed.

Employers may want their employees to use the Withholding Estimator tool to calculate the federal income tax they want their employer to withhold from their paycheck. For the current year's Social Security base wage limit and the Social Security and Medicare tax rates, see Publication 15 (Circular E), Tax Guide for Employers. It streamlined the tax collection process and made it easier for governments to increase additional taxes without most taxpayers realizing it. Social Security tax is one of two taxes that all employers are required to withhold under the Federal Social Security Contributions Act (FICA).

Wendy Latif
Wendy Latif

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