The term Payroll tax actually includes the Social Security tax, Medicare tax and Federal income tax. The Social Security tax provides benefits for retired workers, the disabled their dependents and it has a payroll tax rate of 6.2%. There is a maximum annual amount of Social Security tax withheld per employee. Social Security taxes are not withheld on amounts over the earnings limit. In 2004, the earnings limit was $87,900, and the maximum Social Security tax was $5,449.80.
The Medicare tax provides medical benefits for certain individuals when they reach age 65 and has a payroll tax rate of 1.45%.
Federal income tax is used to fund national programs such as defense, community development, and law enforcement. All employees must complete Form W-4, the Employee’s Withholding Allowance Certificate, which is used Read more












