Month End Glossary

Payroll Taxes

Payroll taxes are mandatory contributions employers and employees pay to government programs, allocated for benefits such as social security, unemployment insurance, and healthcare.

Payroll taxes are a fundamental aspect of employment compensation and are vital for funding various government programs. Employers are required to deduct payroll taxes from employees' gross wages, which typically include income tax withholdings and contributions to social programs like social security and Medicare in the U.S. These taxes are calculated as a percentage of the employee's earnings. Additionally, employers often have responsibilities to pay matching or additional payroll taxes, such as contributions to federal and state unemployment insurance programs.

For instance, in the United States, payroll taxes include Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare, and unemployment insurance taxes. A sample sentence: 'Employers must withhold FICA taxes from employees' wages and remit them along with the employer's matching share to the IRS.' Understanding payroll taxes is crucial for ensuring compliance with legal requirements and avoiding penalties for non-payment or miscalculation.

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