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How employee and contractor payroll taxation differs

Payroll taxes are withheld from an employee’s paycheck by the employer. It is paid as federal income tax and includes withholding taxes, state income taxes, social security taxes and Medicare taxes as well. The tax is paid according to the salary, compensation and benefits received by the employee. Certain expenditures like nontaxable moving expenses are excluded and withheld during the taxation process.

The payroll taxation process is different for employees and private contractors. It is important to determine whether you are an employee or a private contractor. Private contractors could be lawyers and accountants who decide how the services will be performed. However, an employment relationship is more binding. An employee must take instructions from the employer at all times and work accordingly.

Employers must withhold payroll taxes for all their employees. The exact amount depends on wages and their filing status. Employees must provide a W-4 form to their employers, which indicates their tax filing status and makes it easier for companies to analyze their situation. Employees, as well as employers, are also required by law to pay social security taxes. The social security tax is 6.2 percent of the employee’s wages. Employers have to pay this tax by withholding 1.45 percent of all wages. An unemployment tax must also be paid by employers whenever applicable. Unemployment taxes are applicable in several states according to state statutes.

Payroll taxes can be complicated and difficult to comprehend. If you are having trouble understanding payroll taxes, it is advisable to hire an experienced attorney. The attorney will elaborate your rights and help you understand the situation.

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