Editing Taxation in the United States (section)

==Payroll taxes==
[[File:Effective Payroll Tax rate for Different Income Percentiles (2010).gif|thumb|upright=1.6|right|[[Federal Insurance Contributions Act tax|Payroll taxes]] were among the most regressive in 2010.]]

In the United States, payroll taxes are assessed by the federal government, many states, the District of Columbia, and numerous cities. These taxes are imposed on employers and employees and on various compensation bases. They are collected and paid to the taxing jurisdiction by the employers. Most jurisdictions imposing payroll taxes require reporting quarterly and annually in most cases, and electronic reporting is generally required for all but small employers.<ref>A tutorial is available online from the [[Internal Revenue Service]] (IRS) explaining various aspects of employer compliance, see [http://www.tax.gov/virtualworkshop/ Video Tutorial].</ref> Because payroll taxes are imposed only on wages and not on income from investments, taxes on labor income are much heavier than taxes on income from capital.

===Income tax withholding===
{{Main|Tax withholding in the United States}}

Federal, state, and local [[withholding tax]]es are required in those jurisdictions imposing an income tax. Employers having contact with the jurisdiction must withhold the tax from wages paid to their employees in those jurisdictions.<ref>The determination of whether a person performing services is an employee subject to payroll tax or an independent contractor who self assesses tax is based on [http://www.mdc.edu/hr/Operations/AFS/IRSFactorTest.pdf 20 factors] {{Webarchive|url=https://web.archive.org/web/20110501081919/http://www.mdc.edu/hr/Operations/AFS/IRSFactorTest.pdf |date=2011-05-01 }}. See [https://www.irs.gov/pub/irs-pdf/p15.pdf IRS Publication 15 and the tutorial referenced above]. For federal requirements, see {{USC|26|3401|3405}}.</ref> Computation of the amount of tax to withhold is performed by the employer based on representations by the employee regarding his/her tax status on IRS [[Form W-4]].<ref>{{cite web|url=https://www.irs.gov/pub/irs-pdf/fw4.pdf |title=IRS Form W-4 |access-date=2013-11-15}}</ref> Amounts of income tax so withheld must be paid to the taxing jurisdiction, and are available as refundable [[tax credit]]s to the employees. Income taxes withheld from payroll are not final taxes, merely prepayments. Employees must still file income tax returns and self assess tax, claiming amounts withheld as payments.<ref>{{USC|26|31}}.</ref>

===Social Security and Medicare taxes===
{{Main|Federal Insurance Contributions Act tax}}

Federal social insurance taxes are imposed equally on employers<ref>{{USC|26|3111}}.</ref> and employees,<ref>{{USC|26|3101}}.</ref> consisting of a tax of 6.2% of wages up to an annual wage maximum ($132,900 in 2019<ref name=":1" />) for Social Security plus a tax of 1.45% of total wages for Medicare.<ref>Note that an equivalent Self Employment Tax is imposed on self-employed persons, including independent contractors, under {{USC|26|1401}}. Wages and self employment income subject to these taxes are defined at {{USC|26|3121}} and {{USC|26|1402}} respectively.</ref> For 2011, the employee's contribution was reduced to 4.2%, while the employer's portion remained at 6.2%.<ref>{{cite web|url=https://www.irs.gov/pub/irs-pdf/p15.pdf |title=IRS.gov |access-date=2013-11-15}}</ref> There is an additional Medicare tax of 0.9% on wages over $200,000, to be paid only by the employee (reported separately on the employee's tax return on Form 8959). To the extent an employee's portion of the 6.2% tax exceeds the maximum by reason of multiple employers (each of whom will collect up to the annual wage maximum), the employee is entitled to a refundable [[tax credit]] upon filing an income tax return for the year.<ref>{{USCSub|26|31|b}}; {{USCSub|26|6413|c}}.</ref>
[[File:Payroll tax history.jpg|frameless|center|upright=3.65|Payroll tax rates history]]

===Unemployment taxes===
{{Main|Federal Unemployment Tax Act}}

Employers are subject to unemployment taxes by the federal<ref>{{USC|26|3301}}.</ref> and all state governments. The tax is a percentage of taxable wages<ref>As defined in {{USCSub|26|3306|b}}.</ref> with a cap. The tax rate and cap vary by jurisdiction and by employer's industry and experience rating. For 2009, the typical maximum tax per employee was under $1,000.<ref>State tax rates and caps vary.  For example, Texas imposes up to 8.6% tax on the first $9,000 of wages ($774), while New Jersey imposes 3.2% tax on the first $28,900 for wages ($924). Federal tax of 6.2% less a credit for state taxes limited to 5.4% applies to the first $7,000 of wages (net $56).</ref> Some states also impose unemployment, disability insurance, or similar taxes on employees.<ref>See, e.g., [http://lwd.dol.state.nj.us/labor/employer/ea/ea_index.html New Jersey] {{Webarchive|url=https://web.archive.org/web/20110503192451/http://lwd.dol.state.nj.us/labor/employer/ea/ea_index.html |date=2011-05-03 }}</ref>

===Reporting and payment===
Employers must report payroll taxes to the appropriate taxing jurisdiction in the manner each jurisdiction provides. Quarterly reporting of aggregate income tax withholding and Social Security taxes is required in most jurisdictions.<ref>See, e.g., IRS [https://www.irs.gov/uac/about-form-941 Form 941]. Electronic filing may be required.</ref> Employers must file reports of aggregate unemployment tax quarterly and annually with each applicable state, and annually at the federal level.<ref>See, ''e.g''., [https://www.irs.gov/pub/irs-pdf/f940.pdf IRS Form 940].</ref>

Each employer is required to provide each employee an annual report on IRS Form W-2<ref>{{cite web|url=https://www.irs.gov/pub/irs-pdf/fw2.pdf |title=IRS Form W-2 |access-date=2013-11-15}}</ref> of wages paid and federal, state and local taxes withheld, with a copy sent to the IRS and the taxation authority of the state. These are due by January 31 and February 28 (March 31 if filed electronically), respectively, following the calendar year in which wages are paid. The Form W-2 constitutes proof of payment of tax for the employee.<ref>See IRS [https://www.irs.gov/pub/irs-pdf/iw2w3.pdf Form W-2 Instructions]. Note that some states and cities obtain their W-2 information from the IRS and from taxpayers directly.</ref>

Employers are required to pay payroll taxes to the taxing jurisdiction under varying rules, in many cases within 1 banking day. Payment of federal and many state payroll taxes is required to be made by [[electronic funds transfer]] if certain dollar thresholds are met, or by deposit with a bank for the benefit of the taxing jurisdiction.<ref>See {{USC|26|6302}} and IRS [https://www.irs.gov/pub/irs-pdf/p15_09.pdf Publication 15] for federal requirements. EFT is required for federal payments if aggregate federal tax payments, including corporate income tax and payroll taxes, exceeded $200,000 in the preceding year. See, e.g., [http://www.state.nj.us/treasury/taxation/njit31.shtml NJ Income Tax – Reporting and Remitting], New Jersey requirements for weekly EFT payment where prior year payroll taxes exceeded $10,000.</ref>

===Penalties===

Failure to timely and properly pay federal payroll taxes results in an automatic penalty of 2% to 10%.<ref>{{USC|26|6656}}.</ref> Similar state and local penalties apply. Failure to properly file monthly or quarterly returns may result in additional penalties. Failure to file Forms W-2 results in an automatic penalty of up to $50 per form not timely filed.<ref>{{USC|26|6721}}.</ref> State and local penalties vary by jurisdiction.

A particularly severe penalty applies where federal income tax withholding and Social Security taxes are not paid to the IRS. The penalty of up to 100% of the amount not paid can be assessed against the employer entity as well as any person (such as a corporate officer) having control or custody of the funds from which payment should have been made.<ref>{{USC|26|6672}}.</ref>