Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their employees.[1] By law, some payroll taxes are the responsibility of the employee and others fall on the employer, but almost all economists agree that the true economic incidence of a payroll tax is unaffected by this distinction, and falls largely or entirely on workers in the form of lower wages.[1][2][3][4] Because payroll taxes fall exclusively on wages and not on returns to financial or physical investments, payroll taxes may contribute to underinvestment in human capital, such as higher education.[1]
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.
Austria
All Austrian residents are subjects to Austrian income tax. The tax base consists of their worldwide income, including: trade, business, profession, employment, investments and property. A person is considered a resident after a 6-month stay in Austria.
Non-residents are taxed only on income coming from Austrian source/activity.
The income tax is progressive, the percentage increases with amount of income in Euros.
Tax rates for personal income:
<11,693: 0%
11,694 - 19,134: 20%
19,135 - 32,075: 30%
32,076 - 62,080: 42%
62,081 - 93,120: 48%
93,121 - 1,000,000: 50%
>1,000,000: 55%
There are no taxes imposed on inheritance, gifts or estate in Austria. Austria has no luxury tax.
Acquisition of a real estate is taxed according to the value of estate. The rates are following:
<250,000: 0,5%
250,001 - 400,000: 2,0%
>400,000: 3,5%
Real estate tax
The real estate tax is paid annually. The rates vary for every municipality.
Social security contribution
Value-added tax
The value-added tax rate is 20% for every supply of goods provided to customers. For special goods listed below the rate is lower - either 13% or 10%. Products with a lower rate value-added tax are for example books, food or cultural events. There are exceptions for certain goods for which the rate is zero.
Value-added tax returns are filed monthly or quarterly by the 15th day of the following month.
Deductions
Employees are provided with a standard allowance of EUR 132 for any work related expenses. Receipts are required.
Expenses related to production or collection of income are usually considered as deductible. The expenses are for example training costs, work equipment and special work clothes, membership fees to certain organisations, etc.
There is a tax relief for homeworking. Employees may receive up to EUR 3 per day spent exclusively working from home and there is an upper limit of EUR 300 per year. If the amount paid by employer is lower than the maximum (EUR 300) then the employee has the right to include the difference as an income related expense.
Expenses for ergonomic office furniture are deductible and taken as income related expensive. This applies even for ergonomic office furniture purchased for home office, only if the employee works at least for 26 days per year at home. The limit is EUR 300 per year.
Special expenses: charitable contributions are deductible up to 10% of the current year's taxable income.
Family bonus plus: reduces the calculated tax, annually EUR 2000 per child up to 18 years old, living in Austria. Can be split between both parents - then they are entitled to 50%. For children between 19 - 24 up to EUR 650 per year.[5]
Bermuda
In Bermuda, payroll tax accounts for over a third of the annual national budget, making it the primary source of government revenue.[6] 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%).[7] Another tax, social insurance, is withheld by the employer.
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.
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.[8]
Ontario applies a health premium tax to all payrolls on a sliding scale up to $900 per year.[9]
In China, the payroll tax is a specific tax that 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 and insurances.
Tax calculations and contributions differ from city to city in China, and each city's data will be updated yearly.
Taxable Income = Gross Salary – Social Benefits – ¥3,500 IIT = Taxable Income x Tax Rate – Quick Deduction Net Salary = Gross Salary – Social Benefits – IIT
In Croatia, the payroll tax is composed of several items:
national income tax on personal income (Croatian: porez na dohodak), which is applied incrementally with rates of 0% (personal exemption = 3800 HRK), 24% (3800-30000 HRK) and 36% (30000 HRK - )
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-managed (15%) and the other is a personal pension fund (5%)
health insurance (Croatian: zdravstveno osiguranje), universal 16.5%
health insurance exemption exists for the population below 30 years of age as part of government policy to encourage youth employment.
The income tax in the Czech Republic is progressive. The primary tax rate is 15% of gross income, but for an annual salary that is 48 times bigger than the average monthly salary (38.911 CZK in 2022, around 1.600 EUR), the rate is 23%. That applies only to the difference. The minimum wage to pay income tax is 27.840CZK in 2021 (approx. 1140EUR).[10]
For people with trade certificates, the rate applies only to 40% of their revenue. The remaining 60% can be deducted as a standard expense. Freelancers also have to file an Income tax return every year.
Taxpayers can apply a few tax deductions, such as a deduction for a child (starting at approx. 600EUR annually in 2021), for being a student (approx. 160EUR in 2021), for a dependent spouse (approx. 1000EUR in 2021) and more.[11]
Health and social insurance are mandatory and a part of a payroll tax. The health insurance rate is 13,5%. For employees with a salary higher than the minimum wage (16.200CZK in 2022, approximately 660EUR), 9% pay the employers, and only 4,5% pay the employees. Trade license workers pay it themselves. Categories that do not have to pay health and social insurance are, for example, students or people registered at the unemployment department. The social insurance rate is 31,5% for employees (6,5% paid by the employee and 25% by the employer) and 29,2% for freelancers.[12]
The income tax makes up to half of the national income. The health and social insurance make another 30-40%.[13]
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 the 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).[14]
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.[15]
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. The choice of tax class is only important for withholding tax, and therefore for immediately disposableincome. The choice of tax class has no effect on tax refunds.[16]
In addition to income tax withheld, employees and employers in Germany must pay contributions to finance social security benefits. The social security system consists 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:
annual amounts 2015
Threshold West Germany
Threshold East Germany
Health- and Nursing Care insurance
49,500 Euro
49,500 Euro
Old Age- and Unemployment insurance
72,600 Euro
62,400 Euro
In addition, there are some insurances which are covered by the employee 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.
category
Employee
Employer
Notes
Old Age (pension)
9.35%
9.35%
Health
7.3%
7.3%
In addition, the health insurance will impose a surcharge up to 0.9%, to be paid by the employee only.
Unemployment
1.5%
1.5%
Nursing Care
1.175%
1.175%
1.425% childless employees over 23 years old
1.675% in Saxony
Accident
1.6%
depends on risk covered
Sick Pay (AOK, 80%)
0.7%
Depends on coverage and health insurance.
Maternity (AOK)
0.24%
Insolvency (AOK)
0.15%
Payment of outstanding salary in case of bankruptcy
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%. [citation needed]
In 2018, 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 old employees.[18] 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 32 percent, with the two higher income brackets also paying a state tax of 20 or 25 percent respectively. The combination of the two types is a total marginal tax effect of 52 to 60 percent.[19]
According to a 2019 study in the American Economic Review, a large employee payroll tax cut for young workers did not lead to increases in wages for young workers, but it did lead to an increase in employment, capital, sales, and profits of firms with many young workers.[20][21]
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 (February 2022) five PAYE income tax bands in Scotland and four elsewhere; see Taxation in the United Kingdom §Personal taxes for details. Both income tax and National Insurance contributions are paid only on income above a lower threshold. In Scotland this threshold is progressively eliminated for the highest earners, beginning at £100,000 per year.[22]
In the United States, payroll taxes are also called employment taxes by the Internal Revenue Service.[23]
In the United States, payroll taxes are assessed by the federal government, some of the 50 states 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.[24]
Federal social insurance taxes are imposed on employers[25] and employees,[26] ordinarily consisting of a tax of 12.4% of wages up to an annual wage maximum ($118,500 in wages, for a maximum contribution of $14,694 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.[27] 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 "employer's 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%,[28] but Congress allowed the rate to return to 6.2% for the individual in 2013.[29] 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.[30][31]
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.[32] Computation of the amount of tax to withhold is performed by the employer based on representations by the employee regarding their tax status on IRS Form W-4.[33]
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.[34]
Employers are subject to unemployment taxes by the federal[35] and all state governments. The tax is a percentage of taxable wages[36] 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.[37] Some states also impose unemployment, disability insurance, or similar taxes on employees.[38]
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.[39] Employers must file reports of aggregate unemployment tax quarterly and annually with each applicable state, and annually at the Federal level.[40]
Each employer is required to provide each employee an annual report on IRS Form W-2[41] 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.[42]
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.[43]
Penalties
Failure to timely and properly pay federal payroll taxes results in an automatic penalty of 2% to 10%.[44] This is called the Trust Fund Recovery Penalty. 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.[45] 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.[46]
The United States of America has separate federal, state, and local governments with taxes imposed at each of these levels. Taxes are levied on income, payroll, property, sales, capital gains, dividends, imports, estates and gifts, as well as various fees. In 2020, taxes collected by federal, state, and local governments amounted to 25.5% of GDP, below the OECD average of 33.5% of GDP. The United States had the seventh-lowest tax revenue-to-GDP ratio among OECD countries in 2020, with a higher ratio than Mexico, Colombia, Chile, Ireland, Costa Rica, and Turkey.
A flat tax is a tax with a single rate on the taxable amount, after accounting for any deductions or exemptions from the tax base. It is not necessarily a fully proportional tax. Implementations are often progressive due to exemptions, or regressive in case of a maximum taxable amount. There are various tax systems that are labeled "flat tax" even though they are significantly different. The defining characteristic is the existence of only one tax rate other than zero, as opposed to multiple non-zero rates that vary depending on the amount subject to taxation.
In the United States, Social Security is the commonly used term for the federal Old-Age, Survivors, and Disability Insurance (OASDI) program and is administered by the Social Security Administration (SSA). The original Social Security Act was enacted in 1935, and the current version of the Act, as amended, encompasses several social welfare and social insurance programs.
A pay-as-you-earn tax (PAYE), or pay-as-you-go (PAYG) in Australia, is a withholding of taxes on income payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns. PAYE may include withholding the employee portion of insurance contributions or similar social benefit taxes. In most countries, they are determined by employers but subject to government review. PAYE is deducted from each paycheck by the employer and must be remitted promptly to the government. Most countries refer to income tax withholding by other terms, including pay-as-you-go tax.
A payroll is a list of employees of a company who are entitled to receive compensation as well as other work benefits, as well as the amounts that each should obtain. Along with the amounts that each employee should receive for time worked or tasks performed, payroll can also refer to a company's records of payments that were previously made to employees, including salaries and wages, bonuses, and withheld taxes, or the company's department that deals with compensation. A company may handle all aspects of the payroll process in-house or can outsource aspects to a payroll processing company.
The Federal Insurance Contributions Act is a United States federal payroll contribution directed towards both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers.
Garnishment is a legal process for collecting a monetary judgment on behalf of a plaintiff from a defendant. Garnishment allows the plaintiff to take the money or property of the debtor from the person or institution that holds that property. A similar legal mechanism called execution allows the seizure of money or property held directly by the debtor.
A corporate tax, also called corporation tax or company tax, is a type of direct tax levied on the income or capital of corporations and other similar legal entities. The tax is usually imposed at the national level, but it may also be imposed at state or local levels in some countries. Corporate taxes may be referred to as income tax or capital tax, depending on the nature of the tax.
Three key types of withholding tax are imposed at various levels in the United States:
Employee benefits and benefits in kind include various types of non-wage compensation provided to employees in addition to their normal wages or salaries. Instances where an employee exchanges (cash) wages for some other form of benefit is generally referred to as a "salary packaging" or "salary exchange" arrangement. In most countries, most kinds of employee benefits are taxable to at least some degree. Examples of these benefits include: housing furnished or not, with or without free utilities; group insurance ; disability income protection; retirement benefits; daycare; tuition reimbursement; sick leave; vacation ; social security; profit sharing; employer student loan contributions; conveyancing; long service leave; domestic help (servants); and other specialized benefits.
Form W-2 is an Internal Revenue Service (IRS) tax form used in the United States to report wages paid to employees and the taxes withheld from them. Employers must complete a Form W-2 for each employee to whom they pay a salary, wage, or other compensation as part of the employment relationship. An employer must mail out the Form W-2 to employees on or before January 31 of any year in which an employment relationship existed and which was not contractually independent. This deadline gives these taxpayers about 2 months to prepare their returns before the April 15 income tax due date. The form is also used to report FICA taxes to the Social Security Administration. Form W-2 along with Form W-3 generally must be filed by the employer with the Social Security Administration by the end of February following employment the previous year. Relevant amounts on Form W-2 are reported by the Social Security Administration to the Internal Revenue Service. In US territories, the W-2 is issued with a two letter territory code, such as W-2GU for Guam. Corrections can be filed using Form W-2c.
Tax withholding, also known as tax retention, Pay-As-You-Go/Pay-As-You-Earn, tax deduction at source or a Prélèvement à la source, is income tax paid to the government by the payer of the income rather than by the recipient of the income. The tax is thus withheld or deducted from the income due to the recipient. In most jurisdictions, tax withholding applies to employment income. Many jurisdictions also require withholding taxes on payments of interest or dividends. In most jurisdictions, there are additional tax withholding obligations if the recipient of the income is resident in a different jurisdiction, and in those circumstances withholding tax sometimes applies to royalties, rent or even the sale of real estate. Governments use tax withholding as a means to combat tax evasion, and sometimes impose additional tax withholding requirements if the recipient has been delinquent in filing tax returns, or in industries where tax evasion is perceived to be common.
The United States federal government and most state governments impose an income tax. They are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. Income is broadly defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Partnerships are not taxed, but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of credits reduce tax, and some types of credits may exceed tax before credits. An Alternative Minimum Tax (AMT) applies at the federal and some state levels.
For the Old Age, Survivors and Disability Insurance (OASDI) tax or Social Security tax in the United States, the Social Security Wage Base (SSWB) is the maximum earned gross income or upper threshold on which a wage earner's Social Security tax may be imposed. The Social Security tax is one component of the Federal Insurance Contributions Act tax (FICA) and Self-employment tax, the other component being the Medicare tax. It is also the maximum amount of covered wages that are taken into account when average earnings are calculated in order to determine a worker's Social Security benefit.
The United States Internal Revenue Service uses forms for taxpayers and tax-exempt organizations to report financial information, such as to report income, calculate taxes to be paid to the federal government, and disclose other information as required by the Internal Revenue Code (IRC). There are over 800 various forms and schedules. Other tax forms in the United States are filed with state and local governments.
Taxation in Sweden on salaries for an employee involves contributing to three different levels of government: the municipality, the county council, and the central government. Social security contributions are paid to finance the social security system.
Wages and salaries are the remuneration paid or payable to employees for work performed on behalf of an employer or services provided. Normally, an employer is not permitted to withhold the wages or any part thereof, except as permitted or required by law. Employers are required by law to deduct from wages, commonly termed "withhold", income taxes, social contributions and for other purposes, which are then paid directly to tax authorities, social security authority, etc., on behalf of the employee. Garnishment is a court ordered withholding from wages to pay a debt.
Taxes in Germany are levied by the federal government, the states (Länder) as well as the municipalities (Städte/Gemeinden). Many direct and indirect taxes exist in Germany; income tax and VAT are the most significant.
In the United States, the combination of payroll taxes withheld from a household employee and the employment taxes paid by their employer are commonly referred to as the nanny tax. Under US law, any family or individual that pays a household employee more than a certain dollar amount per year must withhold and pay Social Security and Medicare taxes, also known as FICA. The law mandates that all domestic workers, such as cooks, nannies, housekeepers and gardeners, are subject to the nanny tax. Federal unemployment insurance taxes must also be paid if the household pays any number of employees a total of $1,000 or more in a calendar quarter. State unemployment insurance taxes have the same requirement with the exceptions of California ($750), New York ($500), and Washington, D.C. ($500), which have lower thresholds.
A statutory employee is an independent contractor under American common law who is treated as an employee, by statute, for purposes of tax withholdings. For a standard independent contractor, an employer cannot withhold taxes. Statutory employees are also permitted to deduct work-related expenses on IRS Schedule C instead of Schedule A in the United States tax system. As a result, they are allowed a greater tax deduction for business expenses than standard employees, as Schedule C expenses are not subject to the 2% adjusted gross income threshold as seen with Schedule A.
References
1 2 3 "The Knowledge Tax". University of Chicago Law Review. 82: 1981. 2015. SSRN2551567.
↑ "CBO’s analysis of effective tax rates assumes that households bear the burden of the taxes that they pay directly, such as individual income taxes and employees’ share of payroll taxes. CBO assumes—as do most economists—that employers’ share of payroll taxes is passed on to employees in the form of lower wages than would otherwise be paid. Therefore, the amount of those taxes is included in employees’ income, and the taxes are counted as part of employees’ tax burden." http://www.cbo.gov/sites/default/files/EffectiveTaxRates2006.pdf Page 3
↑ Note that an equivalent Self Employment Tax is imposed on self-employed persons, including independent contractors, under 26 USC 1401. Wages and self employment income subject to these taxes are defined at 26 USC 3121 and 26 USC 1402 respectively.
↑ "IRS.gov"(PDF). irs.gov. Retrieved 31 March 2018.
↑ State tax rates and caps vary. For example, Texas imposes up to 8.6% tax on the first $9,000 of wages ($774), while New Jersey imposes 3.2% tax on the first $28,900 for wages ($924). Federal tax of 6.2% less a credit for state taxes limited to 5.4% applies to the first $7,000 of wages (net $56).
↑ See IRS Form W-2 Instructions. Note that some states and cities obtain their W-2 information from the IRS and from taxpayers directly.
↑ See 26 USC 6302 and IRS Publication 15 for Federal requirements. EFT is required for Federal payments if aggregate Federal tax payments, including corporate income tax and payroll taxes, exceeded $200,000 in the preceding year. See, e.g., NJ Income Tax - Reporting and Remitting, New Jersey requirements for weekly EFT payment where prior year payroll taxes exceeded $10,000.
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