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Federal Payroll Taxes

From dKosopedia

The main payroll taxes in the United States are FICA taxes which fund Social Security and Medicare. An employer and employee each pay 1.45% of payroll towards Medicare taxes, and each pay 6.2% of the first $87,900 per person in 2004 (adjusted annually for inflation) of payroll ($90,000 in 2005) towards Social Security taxes. Self-employed people instead pay a 15.3% self-employment tax which is imposed on 92.65% of a self-employed person's income, to approximate closely what would be paid if the self-employed person were employed. Additional details on FICA are provided in this fact sheet.

There is another payroll tax called FUTA which funds unemployment insurance. It is 6.2% of the first $7,000 of wages, but most states have state unemployment systems that provide a credit against this federal payroll tax. As a result, most employers pay a flat $56 per employee per year of FUTA.

Certain employers pay a "Railroad Retirement Tax" in lieu of FICA.

FICA is the largest part of the federal tax burden paid by most working class and middle class Americans, and it is highly regressive. Some critics question whether FICA is really regressive, however, by noting that Social Security benefits are linked to contributions into the system, and noting that working and middle class taxpayers get more dollars out for the money as a multiple of what they put into the system, particularly considering disability payments which are more commonly received by working class taxpayers, than upper middle class taxpayers who receive some wages not subject to FICA taxation.

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This page was last modified 15:58, 2 July 2006 by Chad Lupkes. Based on work by Andrew Oh-Willeke. Content is available under the terms of the GNU Free Documentation License.

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