What are employment Taxes?

Employment taxes are taxes that are imposed for a number of reasons. Common employment taxes include the Medicare tax, social security tax, state disability programs and unemployment insurance. A number of employment taxes are paid solely by the employee, while some are paid just by the employer and some are paid by both employer and employee. In addition, employment taxes can fall under both state and federal tax systems.

Federal employment taxes include federal income tax, social security and medicare taxes. These taxes are all withheld from the the employees’ wages and a matching amount is paid by the employer. In addition, the federal unemployment tax (or FUTA) is paid separately from the other three and is paid completely by the employer from their funds. Employees will not have this withheld from their pay. Those that are self-employed must also pay a self-employment (SE) tax, which is a social security and Medicare tax.

In addition to federal employment taxes, each state may impose taxes under its own system. Currently, 41 states impose income tax. In New Hampshire and Tennessee, the tax only applies to income earned on dividends and interest while the following seven states have no tax on personal income: Nevada, Florida, Alaska, Texas, South Dakota, Wyoming and Washington. Of the 41 states with income tax, 35 base the tax on the employee’s federal return and take a portion of what’s paid to the IRS. Nine of the 41 states also allow taxpayers to deduct some or all of their federal income taxes. These states are Alabama, Missouri, Louisiana, Iowa, Montana, North Dakota, Oregon, Oklahoma, and Utah.

Employment taxes of all kinds are used to support services like Social Security and unemployment that benefit millions of workers in the United States. By paying employment taxes from your paycheck, everyone can ensure that state and federal programs receive the funding they need to continue to exist into the future. Because each state varies in the taxes it imposes, the best way to find out more is to view each state government’s web site to learn about what employment taxes are in effect.