What are Payroll Taxes?

Most of us have heard the term “payroll taxes” before. What you might not know, however, is what, exactly, payroll taxes are.   

To put it simply, payroll taxes are funds that are required to deducted from your pay. These taxes apply to the first $127,000 of your income as of 2017.

The good news is that you’re not all on your own when it comes to payroll taxes, at least not if you work for someone else. When this is the case, your employer will take care of some of these taxes for you. If you are self-employed, though, all of the burden does ultimately fall on you.

For those who work for others, payroll taxes that are withheld are made up of things like state income taxes, federal income taxes, Social Security taxes, and Medicare taxes, also known as FICA taxes.

Whether you fall into the self-employed or traditionally employed category, it can be helpful to talk with a tax professional if you’re having trouble understanding payroll taxes. These professionals can better explain them to you and help to ensure that you’re paying everything you owe to avoid trouble later on down the line.

The Good News

While payroll taxes and having to pay them isn’t very fun, it’s really not as bad as it seems.

Without payroll taxes being deducted from your checks on a regular basis, you’d find yourself making a huge payment come tax time each year.

Plus, if you end up paying too much in payroll taxes or in any taxes for that matter, you’ll get a nice refund from the IRS come tax time.

At the end of the day, payroll taxes are just a part of how our tax system works, so, while they may not be your favorite thing, they are a necessary and inescapable part of life for Americans who work.