Payroll Tax - Payroll Tax Calculator

Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their staff. Payroll taxes generally fall into two categories: deductions from an employee’s wages, and taxes paid by the employer based on the employee's wages. The first kind are taxes that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax (PAYE), or pay-as-you-go tax (PAYG) and often covering advance payment of income tax, social security contributions, and various insurances (e.g., unemployment and disability). The second kind is a tax that is paid from the employer's own funds and that is directly related to employing a worker. These can consist of fixed charges or be proportionally linked to an employee's pay. The charges paid by the employer usually cover the employer's funding of the social security system, and other insurance programs. The economic burden of the payroll tax falls almost entirely on the worker, regardless of whether the tax is remitted by the employer or the employee, as the employers’ share of payroll taxes is passed on to employees in the form of lower wages than would otherwise be paid.

National payroll tax systems

Australia

The Australian federal government (ATO) requires withholding tax on employment income (payroll taxes of the first type), under a system known as pay-as-you-go (PAYG).

The individual states impose payroll taxes of the second type.

Bermuda

In Bermuda, payroll tax accounts for over a third of the annual national budget, making it the primary source of government revenue. The tax is paid by employers based on the total remuneration (salary and benefits) paid to all employees, at a standard rate of 14% (though, under certain circumstances, can be as low as 4.75%). Employers are allowed to deduct a small percentage of an employee's pay (around 4%). Another tax, social insurance, is withheld by the employer.

Brazil

In Brazil employers are required to withhold 11% of the employee's wages for Social Security and a certain percentage as Income Tax (according to the applicable tax bracket). The employer is required to contribute an additional 20% of the total payroll value to the Social Security system. Depending on the company's main activity, the employer must also contribute to federally funded insurance and educational programs.

There is also a required deposit of 8% of the employee's wages (not withheld from him) into a bank account that can be withdrawn only when the employee is fired, or under certain other extraordinary circumstances, such as serious illness (called a "Security Fund for Duration of Employment"). All these contributions amount to a total tax burden of almost 40% of the payroll for the employer and 15% of the employee's wages.

Canada

The Northwest Territories in Canada applies a payroll tax of 2% to all employees. It is an example of the second type of payroll tax, but unlike in other jurisdictions it is paid directly by employees rather than employers. Unlike the first type of payroll tax as it is applied in Canada, though, there is no basic personal exemption below which employees are not required to pay the tax.

Ontario applies a health premium tax to all payrolls on a sliding scale up to $900 per year.

China

In China, the payroll tax is a specific tax which is paid to provinces and territories by employers, not by employees. The tax is deducted from the worker's pay. The Chinese Government itself requires only one tax to be withheld from paychecks: the PAYG (or pay-as-you-go) tax, which includes medicare levies.

Croatia

In Croatia, the payroll tax is composed of several items:

• national tax on personal income (Croatian: porez na dohodak), which is applied incrementally with rates of 0% (personal exemption), 15%, 25%, 35%, 45%
• optional local surcharge on personal income (Croatian: prirez), which is applied by some cities and municipalities on the amount of national tax, currently up to 18% (in Zagreb)
• pension insurance (Croatian: mirovinsko osiguranje), universal 20%, for some people divided into two different funds, one of which is government-management (15%) and the other is a selected pension fund (5%)
• health and unemployment insurance (Croatian: zdravstveno osiguranje), divided into 15% for general health insurance, 0.5% for work-related accident insurance, and 1.7% for unemployment insurance

France

In France statutory payroll tax only covers employee and employer contributions to the social security system. Income tax deductions from the payroll are voluntary and may be requested by the employee, otherwise employees are billed 2 mandatory income tax prepayments during the year directly by the tax authority (set at 1/3 of the prior year's final tax bill). Employee payroll tax is made up of assigned taxes for the three branches of social security system and includes both basic and supplementary coverage. Different percentages apply depending on thresholds that are multiples of the social security earnings ceiling (in 2012 = 36,372 euro per year).

Contributions for salaries between the minimum wage and 1.6 times the minimum wage are eligible to relief (known as Fillon relief) of up to 28 percentage points of employer contributions, effectively halving employer non-wage costs.

Germany

German employers are obliged to withhold wage tax on a monthly basis. The wage tax withheld will be qualified as prepayment of the income tax of the employee in case the taxpayer files an annual income tax return. The actual tax rate depends on the personal income of the employee and the tax class the employee (and his/her partner) has chosen.

In addition to income tax withheld employees and employers in Germany must pay contributions to finance social security benefits. The social security system consist of four insurances, for which the contribution will be (nearly) equally shared between employer and employee (old age insurance, unemployment insurance, health insurance and nursing care insurance). Contributions are payable only on wages up to the social security threshold:

In addition there are some insurance which are covered by the employer only (accident insurance, insolvency insurance, contribution to the maternity allocation, contribution for sick pay allocation for small companies). The following table shows employee and employer contributions by category for the year 2015.

  see also www.lohnsteuer.de  

Greece

An employer is obligated to deduct tax at source from an employee and to make additional contributions to social security as in many other EU member states. The employer's contribution amounts to 28.06% of the salary. The employee's contribution is 16%.

Income tax is extra.

Hong Kong

In Hong Kong, salary tax is capped at 15%. Depending on income, employers fall into different tax brackets.

Sweden

In 2010, the Swedish social security contribution paid by the employer is 31.42 percent, calculated on top of the employee's salary. The percentage is lower for young and old employees. The other type of Swedish payroll tax is the income tax withheld (PAYE), which consists of municipal, county, and, for higher income brackets, state tax. In most municipalities, the income tax comes to approximately 30 percent, with the two higher income brackets paying a total of 50 or 55 percent respectively. The combination of the two types is a total tax effect of 47 to 66 percent.

United Kingdom

In the United Kingdom, pay as you earn (PAYE) income tax and Employees' National Insurance contributions are examples of the first kind of payroll tax, while Employers' National Insurance contributions are an example of the second kind of payroll tax.

There are currently (July 2011) four PAYE income tax bands: 23% plus 11% national insurance on annual income up to £35,000 40% from £35,001 to £150,000 and 45% on all income above £150,000. The fourth rate of 10% is paid on income from savings up to £2,560 per annum only and is not paid if non-savings income is in excess of this limit. In addition employees pay a national insurance contribution of 12%, while employers pay 13.8%. The contributions are not paid on the total salary but only above a lower threshold.

United States

In the United States, payroll taxes are assessed by the federal government, some of the fifty states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not have state income tax; New Hampshire and Tennessee only tax income from interest and dividends), the District of Columbia, and numerous cities. These taxes are imposed on employers and employees and on various compensation bases and 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. The Federal Insurance Contributions Act tax is a federal payroll tax imposed on both employees and employers to fund Social Security and Medicare â€"federal programs that provide benefits for retirees, the disabled, and children of deceased workers.

Income tax withholding

Federal, state, and local withholding taxes 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. 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.

Amounts of income tax so withheld must be paid to the taxing jurisdiction, and are available as refundable tax credits 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.

Social Security and Medicare taxes

Federal social insurance taxes are imposed on employers and employees, ordinarily consisting of a tax of 12.4% of wages up to an annual wage maximum ($118,500 in 2016) for Social Security and a tax of 2.9% (half imposed on employer and half withheld from the employee's pay) of all wages for Medicare. The Social Security tax is divided into 6.2% that is visible to employees (the "employee contribution") and 6.2% that is visible only to employers (the "employers contribution"). For the years 2011 and 2012, the employee's contribution had been temporarily reduced to 4.2%, while the employer's portion remained at 6.2%, but Congress allowed the rate to return to 6.2% for the individual in 2013. To the extent an employee's portion of the 6.2% tax exceeded the maximum by reason of multiple employers, the employee is entitled to a refundable tax credit upon filing an income tax return for the year.

Unemployment taxes

Employers are subject to unemployment taxes by the federal and all state governments. The tax is a percentage of taxable wages 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. Some states also impose unemployment, disability insurance, or similar taxes on employees.

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. Employers must file reports of aggregate unemployment tax quarterly and annually with each applicable state, and annually at the Federal level.

Each employer is required to provide each employee an annual report on IRS Form W-2 of wages paid and Federal, state and local taxes withheld. A copy must be sent to the IRS, and some state governments also require a copy. 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.

Employers are required to pay payroll taxes to the taxing jurisdiction under varying rules, in many cases within one 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.

Penalties

Failure to timely and properly pay federal payroll taxes results in an automatic penalty of 2% to 10%. 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. 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.