Payroll Taxes: Do you know what gets deducted from your paycheck?

Generally three main items get deducted from your check:
– Social Security at 6.2%
– Medicare at 1.45%
– Federal withholding depending on your tax bracket.

So let’s just say someone’s hourly salary is at $10 working 40 hours a week in a 52 week period gets paid weekly lives in the state of Florida. On his W-4, this individual states that his allowed 2 federal withholding exemptions. Furthermore this individual files a filing status of Single on his federal income tax every year.

BEFORE TAXES:

The individual salary will be: ($10 times 40hours) = $400 per week.
The annual Salary will be: ($400 times 52 Weeks) = $20,800 per annum.

AFTER TAXES:
The individual net Salary after Social Security and Medicare will be:
($400 times (1 minus 7.65)) = $369.4 per week – $9 (Federal withholding) = $360.90 per week.
($360.9 times 52 weeks) = 18,766.80 per annum.

After you take into consideration of all the taxes involved. This person will have paid $2,033.20 worth of taxes in a given year. Now this is all just for federal purposes, there are even further deductions if you live in an area that has City taxes and State taxes (New York City).

Other fun facts:
Generally, the employer of the individual has to pay taxes as well. The employer will typically pay a matching of 7.65% taxes as well.

So taking the example above, since the individual pays $30.6 per week for Social Security and Medicare. The employer will also pay the same amount ($30.6 per week and $1,591.20 per year) to the Department of the treasury as well.

From a tax point of view, due to matching of Employees social security & Medicare taxes required by employers, is the reason why employers prefer to hire a person on a 1099 contract versus hiring someone on Payroll (W-2).

Modi CPA is a licensed firm in the state of Texas in The Colony, TX. We are a qualified firm to discuss Domestic Tax matters such as Payroll Tax and Offshore/Foreign US tax implications regarding Inbound and outbound matters. Do not hesitate to contact our office should you have further questions. Our Phone number is (904)616-5918 and email is RaviModiCPA@gmail.com