HOW MUCH ARE PAYROLL TAXES THIS YEAR
February 24, 2021 - Douglas Myser
How much are payroll taxes this year. Payroll taxes are types of tax that are applied to earned IRS income, meaning wages, salaries, bonuses, and income from a business you actively participate in. There are two components to the payroll tax in the United States---Social Security and Medicare. Each one has different rates, income limitations, and other details to know. The first component of U.S. payroll tax is known as OASKI (Old age, Survivors, and Disability Insurance) tax, but it more commonly referred to as the Social Security tax. Social Security tax is assessed at a rate of 6.2% of taxable payroll on both employees and their employers. Each year, Social Security tax only applies to a certain amount of earned income. In 2021, the upper limit---commonly known as the Social Security wage base is $142,800. This is the only income level that is adjusted for inflation every year. How much are payroll taxes this year.
It's important to note that Social Security tax only applies to earned income. In other words, of some or all of your income comes from passive sources, such as dividends, interest, pensions, or income from a business you don't have an active role in, it won't be subject to Social Security tax. Since Social Security tax can only be applies to the first $142,800 in earned income and the rate is 6.2%, the maximum Social Security tax an employee will have to pay in 2021 is $8853.60. Social Security tax revenue is directed into the Social Security trust fund, along with an equal contribution from the employer, to fund future benefits from the program. How much are payroll taxes this year.
The second component is Medicare, which is taxes at a rate of 1.45% to the employer and employee. Unlike the Social Security tax, there is no upper income limit to the Medicare tax. Even if you earned income is in the millions, you'll pay Medicare tax on all of it. There's an additional 0.9% Medicare tax paid by individuals with earned income in excess of $200,000 and joint filers with earned income greater than $250,000 that only applies to income over the threshold.
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