paycheck

How much is deducted from your paycheck for payroll tax?

Hiring a new employee implies, for many companies, making an in-depth analysis of the cost-benefit that it can bring them because, in addition to the salary that the employee will receive, companies must consider the payment of some local taxes. This is the case of the Payroll Tax (ISN).

What is Payroll Tax?

This is a rate that the State asks employers for transactions corresponding to the labor relations they have. Within the concepts taxed locally for the payment of Payroll Tax, salary and labor benefits are contemplated.

Although we are talking about a local contribution (that is, each state treasury office is responsible for collection), non-payment can lead to sanctions or fines.

How is Payroll Tax calculated?

The ISN is a state payroll tax, that is, the contribution rate will vary according to the state demarcation in which the company is incorporated. Among the 32 states, the Payroll Tax rate ranges from 0.5% to 3.0 percent. All employers are required to pay this tax, regardless of whether they are registered as natural or legal persons.

To comply with the payment of Payroll Tax, you must declare it each month in the Ministry of Finance of the state in which your company is incorporated. So that you do not have problems over time, do the Payroll Tax calculation at the beginning of the month.

To calculate Payroll Tax Concepts correctly, review the premiums it contemplates and the concepts it does not cover.

Premiums considered:

  • Salaries.
  • Extra hours.
  • Bonds.
  • Seniority premiums.
  • Commissions.
  • Compensations.
  • Bonus.
  • Vacation premiums.
  • Payments to administrators, directors, surveillance.

What it does not cover: 

  • Funeral expenses of the staff.
  • Contributions for the SAR.
  • Equipment installation expenses.
  • Infrastructure or materials are necessary for the work.
  • Retirements or pensions.
  • Premiums corresponding to IMSS or ISSSTE.
  • Travel expenses.
  • Insurance fees.
  • Social security benefits.
  • Utilities.

In certain cases and some states of the republic, there are subsidies to the ISN and the exemption can be complete. This depends on the Secretary of Finance of each entity and they will use their methods to select the companies that are candidates.

Check carefully how the Payroll Tax is calculated, as it is crucial to keep your company fully operational. Always seek to learn more about this tax and seek advice from specialists so that you can improve your processes and be able to achieve better competitiveness.

If you’re an employee, you’re probably used to receiving a regular paycheck every week or twice a month, but you probably don’t pay attention to what’s deducted from your income unless you see a change or fluctuation in what you take with you. House. Sometimes employees recognize a change in certain periods of the year and it could be attributed to the maximum payroll tax threshold being reached.

Like many, you may have a lot of questions about payroll taxes. TurboTax takes care of it all and is here to answer the common questions we hear about payroll tax.

What is payroll tax?

The payroll tax consists of the FICA tax (Federal Social Security Contributions Act) which is a tax imposed on employees and employers that help fund Social Security and Medicare. If you’re employed, these taxes are deducted from your paychecks, so most people don’t notice them.

If you are self-employed, you pay FICA taxes and they are figured on your return as self-employment taxes when you file your return.

How much is deducted from your paycheck for payroll tax?

As an employee, you pay FICA tax, which is 7.65% of your gross income. The FICA tax consists of the Social Security and Medicare tax that is withheld from your paycheck. Social Security tax is imposed on your wages based on a wage base limit, however, Medicare tax does not have a wage base limit.

Employees pay 6.2% Social Security tax on the first $137,700 of earnings and 1.45% Medicare tax on all earned income for 2020. Your employer also matches what you pay, so the total that goes to Social Security and Medicare tax is 15.3%. The wage cap for Social Security is why some employees may start to notice a difference in what they bring home in their paycheck because once they hit the wage base threshold, Social Security tax is no longer there. it is not withheld.

If you are self-employed, you pay the full 15.3% as self-employment taxes when you file. The good news is that the IRS allows you to deduct half of the self-employment tax against your earnings for federal income tax purposes, and the 15.3% is calculated only on your net business income, not your gross income.

Does the payroll tax rate change?

In general, the Social Security and Medicare tax rates of payroll taxes have remained the same, however, there have been a few times when payroll tax abatement or payroll tax cuts such as the Act Recovery Act were signed into law as part of an economic stimulus.

Don’t worry about knowing these tax laws. TurboTax will ask you simple questions about you and give you the tax deductions and credits you qualify for based on your answers. If you have questions, you can connect live via a one-way video call with a TurboTax Live Certified Public Accountant (CPA) or Enrolled Agent to answer questions. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish year-round, and can also review, sign and file your taxes from the comfort of your home.