Regardless of how you earn income, you will still need proper tax forms. The two primary documents you focus on as a traditional employee are forms W-2 and W-4. Your W-4 determines your tax withholdings, while your W-2 shows how much income you received and how much you owe in taxes. However, not everyone works directly for an employer. Self-employed individuals, freelancers, independent contractors, or others that receive income outside of a traditional employee relationship need to rely on IRS Form 1099. We will discuss what Form 1099 is, its use, and how to file it.

What is Form 1099?

There are multiple types of Form 1099; however, they are all used for the same reason. Form 1099’s primary purpose is for taxpayers who receive income outside the traditional employer-employee relationship. Like Form W-2, Form 1099 provides information to both the IRS and the taxpayer regarding their income for the fiscal year. Once the IRS receives this information, they can determine how much the individual owes in taxes. Typically, the company or firm paying you sends you a Form 1099 following the end of the tax year. For example, a firm providing a freelance platform to connect customers with workers will send 1099 forms to those freelancers and the IRS to report income earned through that relationship. “Gig workers” typically fit this category, providing ride-sharing and food delivery services and design, programming, and other temporary project help.

Using Form 1099

Form 1099 provides income and tax information to the IRS regarding an individual’s income outside of a traditional W-2 employer. This type of income is from non-employment-related sources. In other words, it’s for those that receive payment other than a standard salary from an employer. Form 1099 also allows you to report dividends from investments and interest from banks. Also, tax refunds from the state or local authority can go on Form 1099 for income. Essentially, Form 1099 handles all forms of income that are not part of a traditional salary. If you want to avoid receiving an audit from the IRS, taxpayers need to report all sources and amounts of income.

Exemptions

If you earn less than $600 from non-employment-related sources, you are exempt from filing Form 1099. However, if you exceed that amount, you must report that income with Form 1099.

Form 1099 Types

Although every type of Form 1099 serves the same income reporting purpose, there are different versions of the 1099 form for reporting different types of income. The two most common types are the following: Other types include: There are several more types of Form 1099, with each one representing a specific type of income. The main takeaway with Form 1099 is that if you receive any form of payment that is not traditional, you should report it.

Filing Your 1099 Form

Generally, taxpayers do not need to complete Form 1099 to report their income. Instead, taxpayers receive Form 1099 from their sources of income, which could be anything from a business to a financial institution. Similar to Form W-2, Form 1099 has a deadline of January 31st, which means that the taxpayer should get their copy by mid-February at the latest.

If You’re a 1099 Employee

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As a self-employed or small business owner, you can secure your retirement and your employees with a Simplified Employee Pension (SEP) Plan.

What Is a SEP Plan?

A simplified employee pension plan is an Individual Retirement Account (IRA) that provides a streamlined approach to retirement planning for self-employed and small business owners. The primary advantage of this pension plan is that it is easier to set up and has a lower operating cost than that of a traditional IRA. SEP Plan Benefits SEP Plan Drawbacks Eligibility Requirements An employee or a self-employed person who is eligible for a SEP plan: Employers can relax some eligibility criteria but cannot impose stricter requirements. Employee exclusions from the SEP plan are:

How Does a SEP Work?

You can open a SEP if you are self-employed or a small business owner and want to secure a retirement option for yourself and your employees. You can set up a SEP plan by filling out Form 5305-SEP or a prototype of the same. You can choose a financial institution or a broker with whom you want to set up the account. Though not necessary, all employee’s SEP funds typically use the same financial institution. SEP Plan Contribution Limits: Employers can contribute to each employee’s SEP plan up to: When you are self-employed, you also contribute to your plan as you treat yourself as both employer and employee. To determine the amount you can contribute and deduct, you will need to do the following:
  1. Determine your net profit.
  2. Multiply your Self-Employed tax deduction by 0.50
  3. Subtract your reduced Self-Employed tax from your net profit.
  4. Multiply new net profit by your reduced plan contribution rate.
  5. The final total will be the amount you can contribute and deduct.
Withdrawing From a SEP Plan: Maintaining Your SEP Plan You can maintain a SEP plan for yourself or your employees by opening an account with any broker or financial institution. The contribution so made would be invested in a wide range of stocks and shares, ETFs, mutual funds, and CDs to get the best returns on the investments in the long run. Making Contributions To maintain a SEP plan, you need to contribute to the fund anytime before the due date of filing your income tax return for the year. After making the contributions, employees can make their own investment decisions. Your contribution to your employee’s SEP accounts is automatically vested in them. To ensure your SEP operates as per the rules, you need to conduct an annual check-up.

Takeaway

Simplified employee pension plans are a simple way for self-employed people and owners of small businesses to have a tax-deferred benefit and a pension fund to secure their future after retirement.

Simplified Employee Pension (SEP) Plans

View Resource Simplified Employee Pension (SEP) Plans
Tax season can be a headache, but it doesn’t have to be. One effective way to make filing your taxes easier is by better understanding one of the necessary tax forms: Form W-2. You should receive your W-2 by mid-February at the latest. Employers must send out W-2s to their workers by January 31st each year (or a few days later if the end of the month falls on a weekend). If you haven’t received it by then, contact your employer. You cannot file your taxes until you’ve received your W-2, which is essential to the process. Form W-2 helps the IRS determine how much income employees should be claiming and confirms what they have already paid in taxes and need to pay in taxes (if any). Form W-2 is a necessary component for tax returns and tax filing.

What is Form W-2?

Form W-2, or the Wage and Tax Statement, is the annual statement provided by your employer that reports your taxable income to you and the IRS. The form shows you and your employer’s payments for Medicare and Social Security and taxes withheld from your pay. All of the taxes withheld from your pay are on Form W-2. Information on Form W-2 goes to state and federal taxing authorities. It helps determine how much you should be paying in taxes for the given year.

Reading Form W-2

Reading a W-2 can be daunting if you do not understand the listed information. Form W-2 has multiple boxes explaining different aspects of your earnings and withholdings. Even if you’re not trying to file your taxes, you should still be able to read your W-2. Below is a short explanation of every box on Copy B of the W-2, which is the one you will file with your tax return: Boxes A – F: Lists the following: Box 12: All of the codes your employer needs to report to the IRS: Box 13: These options are not subject to federal income tax withholding. The checkboxes include: Box 14: A miscellaneous field. This field could include: Boxes 15 to 20: These boxes contain local and state income tax information from your employer. The boxes include: You will also need to attach Copy 1 to any other tax returns you’re required to submit (including state, city, or local).

Filing Form W-2

Once you receive Form W-2, you will be able to file for your tax return using Form 1040, your W-2, and any other financial and tax documents.

Understanding Your W-2 Form

View Resource Understanding Your W-2 Form
When someone hears the words “identity theft,” they immediately think of a stolen name or even social security number, but no one thinks about medical identity theft. The usual culprits for medical identity theft typically are individuals, health providers, or even remote hackers. According to the American Association of Retired Persons, or AARP, more than 45 thousand people in 2020 fell victim to medical identity theft. This specific form of identity theft can wreak havoc for years to come as it adds questions to an individual’s past medical history. Therefore, it is essential to understand what medical identity theft is and protect yourself and your personal information.

What is Medical Identity Theft?

Medical identity fraud is a type of fraudulent activity that occurs when someone uses the personal information of someone other than themselves. This information may include: Stealing this information happens for several reasons, including seeing a doctor under a presumed identity, receiving medical treatments, medications, surgeries, or purchasing medical devices. In addition to these, dishonest employees will either sell your protected information to an outside source or use your personally identifiable information to submit one or more fraudulent claims to your insurance company.

Protecting Your Information

Protecting your personal information is one of the most important things you can do for yourself. Through constant monitoring of several aspects, you can ensure that you do not fall victim to medical identity theft. Review and read thoroughly through all notices you receive from a health provider’s office, whether by mail or during an in-person visit. Even your primary care physician’s offices, laboratories, and pharmacy could be susceptible to unusual activity. Your health insurance information holds personally identifiable data within it; therefore, you must not share this information with just anyone. Also, be wary of companies claiming to offer any free services or products as these are likely a scam. In addition, if you have lost your health insurance card, or feel it was stolen, request a new insurance card and identification number immediately. Protect yourself by shredding the following documents that contain personally identifiable information: By monitoring your credit report and keeping a personal copy of your medical records, you can stay on top of your personal information and detect any errors quickly.

Dealing With Stolen Information

Medical identity theft is a form of fraud that is punishable with the potential of a felony offense with several years of jail time. While it may not be easy to determine who has stolen your medical identity, several entities are put into place to help. It is essential to know that medical identity theft can occur in several ways. For example, your medical provider’s office employees may sell your information because individuals will pay big money for your identity. In addition, individuals can steal your medical information when you incorrectly dispose of paper documents. Theft also occurs when hackers penetrate medical records databases. If you find yourself a victim of medical identity theft, file an official report as soon as possible. Utilize outside resources to monitor your credit report, health insurance claims, and take the necessary measures to protect your personally identifiable information.

Protecting Yourself Against Medical Identity Theft

View Resource Protecting Yourself Against Medical Identity Theft
Many people fill out Form W-4 multiple times throughout their careers without really understanding how it affects their tax bill. However, every employee must fill out Form W-4. The form lets your employer know how much federal tax to withhold from your paychecks. In 2020, the IRS made significant changes to Form W-4 to improve transparency and increase payroll withholding system accuracy. We will discuss Form W-4’s purpose and how to fill one out correctly.

Explaining Form W-4

Form W-4 is known as the “Employee’s Withholding Certificate.” It is an IRS form that employees fill out to communicate to employers how much federal tax to withhold from each paycheck. Employers use Form W-4 to calculate payroll taxes which sends the taxes to the IRS and the state for the employee. If you already have a W-4 form on file with your employer, you do not need to complete one every year. However, you need to complete and submit a W-4 form to your employer whenever you start a new job. Also, if you ever want to change your withholdings at your job, you may need to complete a new W-4. Whatever the reason for filling out a W-4 form, it can be a great way to evaluate your withholdings.

Using Form W-4

Form W-4 allows you to pay federal taxes like the federal income tax. Federal income taxes fund a wide range of national programs, including:

Updated Form W-4

The new and updated version of Form W-4 eliminated the option to claim personal allowances. Personal allowances enable you to claim allowances so that your employer would withhold less tax from your paycheck. The new form also allows you to note whether or not your circumstances warrant more or less withholding. For example, it asks whether or not you have income from a second job or expect to have deductions that you will itemize when you receive your tax return.

Completing Form W-4

Form W-4 comes in a four-page packet, but the document itself is only one page and has just five steps: Step 1) Personal Information Provide the following: Step 2) Account for Multiple Jobs This section is for individuals with more than one job or filing jointly with their spouse who also works. Fill out steps 2 to 4(b) for whichever W-4 you’re using for the highest paying job. You can leave those steps blank on the other W-4(s). Step 3) Claiming Dependents This step allows you to claim dependents, like if you have any kids. For anyone making an income under $200,000 (or $400,000 for joint filers), you can enter your total number of dependents and multiply that by the credit amount. Step 4) Further Adjust Withholdings This step is an optional section where you may choose to get more or less (if you are eligible) tax withheld from your paycheck. If you want more taxes withheld, or you’d like to claim deductions other than standard ones, this is where you can do that. People often increase the amount taken out, so they get a more considerable sum back during tax returns at the end of the tax year. Step 5) Signature This step is the last part of the W-4 form, where you need to sign and date the document.

Reasons to Revise Your W-4

The latest iteration of Form W-4 has the most significant updates since enacting the Tax Cuts and Jobs Act in 2017, which made considerable changes to withholding. Due to the new version, it may be best to reevaluate your form if you have been with the same employer for years. Another reason to revise your W-4 is by determining if you received a tax refund or had to pay taxes. Owing a lot in taxes shows that you underpaid taxes for that year. However, if you have a large refund, you overpaid in taxes. In some cases, adjusting your withholdings can change what you owe in taxes or what you get back as a refund. Furthermore, suppose you recently got married or divorced, had a child, or started a new freelance job (in addition to your current job). In that case, it is a good idea to revise your W-4 as there will likely be changes to it.

Filling Out a W-4 Form

View Resource Filling Out a W-4 Form
If meeting your retirement goals while getting tax benefits sounds like a great idea, you should consider investing in a 401(k) plan.

What Is a 401(k)?

An employer provides a 401(k) plan as an employee benefit. It offers tax advantages to help employees save for their future retirement. In a 401(k) plan, employees can contribute a part of their salary to a specific account. Employees receive tax advantages from the amount contributed while also growing their retirement nest egg. Some things to consider about a 401(k) plan are: Employee Benefits. A 401(k) plan is a tool you can use as an employee for tax-deferred savings and investments towards your retirement. Your employer usually matches your contribution and applies it to the designated account. You can choose the amount you decide to invest, and your employer can contribute accordingly. In addition, you can set up your 401(k) plan to automatically deduct a specific percentage of your income so that you continue to build your savings. The amount transferred, also called deferred wages, is not taxed and is not shown in your income tax return. Employer Benefits. Employers also receive tax benefits for matching the contributions of their employees’ 401(k) accounts. Employers can take deductions on their corporate income tax returns for those contributions. Investing as an Employee. Although your decision depends on your financial situation, lifestyle, and retirement goals, a typical 401(k) investment rate is about 10% of your salary. When your employer contributes a matching percentage to your 401(k) fund, you should put in the minimum amount required to maximize your earnings. If you start investing early, every paychecks’ contribution to a 401(k) plan will help you build retirement savings over the long term.

Choosing a 401(k) Plan

There are two primary types of 401(k) plans: Traditional 401(k). You can contribute a percentage of your salary every month to this plan, which your employer then matches. Sometimes, employers can contribute for the benefit of all participating employees even when they do not contribute to the fund. Usually, employers provide a matching contribution towards their plan. In addition, employee contributions are eligible for tax deductions. A traditional 401(k) plan requires an employer to conduct annual tests to verify that they do not discriminate in favor of better-paid employees. Other plans similar to the traditional 401(k) are: Roth 401(k). A significant difference between a traditional and a Roth plan is that in the Roth 401(k) plan, employees pay taxes on their income before contributing to their plan. That way, they can avoid paying taxes at the time of withdrawal.

Maintaining Your 401(k)

As described, a 401(k) plan is a contribution fund where employees put aside a specific percentage of their monthly income to secure their retirement goals. Employers usually make a matching contribution to the fund. While you, as an employee, can determine the percentage of income you want to contribute, the maximum amount that both employer and employee can contribute to the fund adjusts for inflation. For 2022, no more than $305,000 of an employee’s compensation can be considered when determining contributions. The employer must report the employee contributions in Form W2 or wage and tax statement even though it is tax-deductible under income tax laws.

Withdrawing From Your 401(k)

You can withdraw funds in both traditional and Roth 401(k) plans only by reaching the age of 59 1/2 years or after meeting specific criteria set by the IRS. In addition, you’ll need to consider your vesting percentage because your plan may require the completion of a particular number of years of service for vesting in matching contributions. If you make an early withdrawal while not following IRS rules, you could receive a 10% penalty on top of the required tax. In a traditional 401(k) plan, an employee must pay taxes on the amount withdrawn. In contrast, for a Roth 401(k), the employee pays taxes on their income before contributing.

Takeaway

The main benefit of having access to a 401(k) plan is that employees can invest funds for their retirement goals while at the same time getting tax benefits out of it. The employer also pitches in and makes a matching contribution towards the fund to secure the employees’ financial future even after retirement.

An Overview of 401(k) Plans

View Resource An Overview of 401(k) Plans
A company can provide multiple benefits for its employees. Examples include vision and dental plans, retirement benefit plans, long-term care insurance plans, and more. In addition, employee stock ownership plans, or ESOPs, are an exceptional benefit that companies may choose to provide. ESOPs can motivate employees to grow and improve the business due to their direct connection with profitability. If the company is doing well and its stock is up, the employees gain value in their investments. In addition, ESOPs also offer retirement benefits for the employees by giving them partial ownership within the company.

What is an ESOP?

Essentially, an ESOP is a retirement plan provided by a company for its employees, set up as a trust fund. ESOPs are different from employee stock option plans. The stock option plans allow employees to purchase their company’s stock at a set price after a given amount of time. ESOPs provide employees with partial ownership of the company by increasing their stock holdings over time. Afterward, company stock can be sold for cash when the employee retires. ESOPs benefit both employees, who gain partial ownership within the company, and its shareholders, which helps the company overall. In addition, they are commonly used to provide a market for any exiting owners.

Understanding ESOPs

Essentially, ESOPs are trust funds. A company can contribute shares or cash directly to the trust fund, or it can borrow money to purchase additional shares. All contributions are tax-deductible. Employees do not pay any taxes on these contributions until they exit the company, giving them the option to either sell on the market or back to the company.

Benefits of Setting Up an ESOP

ESOPs are qualified plans providing tax benefits for both the company and its participants. The main reasons a company uses an ESOP plan are the following:

Using Your ESOP

ESOP participants get an annual statement showing them the number of shares allocated to them that year and their net account balance. The number of shares typically takes the employee’s overall compensation into account. Vesting provisions are also a vital element of an ESOP. There are two types: Benefit distribution methods can vary, and there are other options; however, the employee will receive equal installments of their stocks over five years. Participants will not receive the vested portion of their ESOP until either they retire, quit their job, or die. Then the individual can sell the shares back to the company or sell them on the market.

How Do Employee Stock Ownership Plans (ESOPs) Work?

View Resource How Do Employee Stock Ownership Plans (ESOPs) Work?
While choosing from the various kinds of retirement plans available, an employer or a company can choose a profit-sharing plan to provide retirement benefits for its employees.

What is a Profit-Sharing Plan?

Profit-sharing is a retirement plan that considers the employer’s discretionary income. Unlike other retirement plans that require employees to contribute to the retirement plan, a profit-sharing plan puts the entire responsibility of funding on the employer. The company can exercise its discretion while allocating its profits towards its employees’ retirement goals. It can choose the amount to contribute each year out of the profits available. As a result, they may avoid making contributions in a lousy year. A profit-sharing plan can be a powerful tool to boost employees’ retirement goals, improving morale and productivity. In addition, it is a sure way of appreciating an employee’s contribution to an organization. Benefits: Drawbacks:

How Profit-Sharing Plans Work

An employer shares its profit with its employees through the profit-sharing plan. When contributed to a specific employee fund, the funds become tax-deferred and are taxable only on withdrawal. An employer creates a fund with a financial institution to contribute a percentage of their profits to secure their employees’ retirement. A profit-sharing plan is at the employers’ discretion, usually in addition to a traditional retirement plan like 401(k). The company can distribute profits through either a tax-deferred stock option or a cash bonus. However, it does become taxable at the time of withdrawal. Eligibility Criteria: All employees are usually eligible to participate in the plan, although the company might exclude some employees when Allocation of Contribution An employer determines the extent of contribution by following the comp-to-comp method. The steps are:
  1. Determine the total compensation paid to all the employees.
  2. Divide the actual compensation of each employee by the total employee compensation to get a fraction.
  3. Multiply each employee’s fraction by the total contribution allocated by the employer.
The employer can allocate profits using any of the three methods:
  1. Equal Contribution Plan: Profit is distributed equally to all the participating employees.
  2. Age-Based Plan: Employers contribute to the plan based on the age and the years of service of each participating employee.
  3. Variable-Rate Plan: Employers can contribute varied rates to each group of employees based on the factors they decide.
Employers can use the profit-sharing plan by contributing tax-deferred income in funds of the participating employees or in the form of a cash bonus depending on the company’s profit in a particular year.

Maintaining Your Profit-Sharing Plan

A profit-sharing plan is made purely at the employer’s discretion, depending on how much of the profit they desire to allocate towards the individual employee’s retirement plans. Although the employer is free to allocate any amount they choose, the company must pay proportionately to all the participating employees of the company. The IRS has also fixed a limit on a company’s total amount towards an individual employee account. Limits of Contribution In 2022, a company can share its profits with employees to the extent of 100% of employee’s compensation or $61,000, whichever is less. Further, the company must fill out Form 5500 to disclose the plan’s details and its participating employees. Also, the company must report that it is not discriminating in favor of its highly paid employees in the process. Withdrawing Funds Funds deposited by the company towards profit sharing are tax-deferred at the time of contribution but will be taxable at withdrawal. Withdrawal of funds is allowed on attaining the age of 50 1/2 years. It would attract an additional tax of 10% if withdrawn earlier.

Takeaway

A profit-sharing plan is an effective tool in the hands of the employers to provide retirement benefits to the employees and get a tax advantage in the process.

What is a Profit-Sharing Plan?

View Resource What is a Profit-Sharing Plan?
Suppose you are looking for a retirement plan that does not require contributions but allows a fixed income post-retirement based on your earnings or employment tenure. In that case, a defined benefit plan might work for you.

What is a Defined Benefit Plan?

A defined benefit plan is an employer-determined guaranteed retirement plan. This plan provides a fixed benefit, often based on an employee’s earnings or career, to employees at the time of retirement. According to this plan, employers can set up a pension fund for their employees which puts a fixed amount towards their retirement savings every year. The amount contributed is tax-deferred and is then taxable at distribution. An employer can pay the retirement benefits in the form of:
  1. A pension. An employer pays a monthly income calculated per a fixed rate on an employee’s retirement.
  2. A cash balance. An employer pays the entire amount as a lump sum.
Your employer needs to inform you about the plan’s details to make an informed decision. The total amount received by the employee is fixed and decided through a formula based on the employee’s earnings or career.

Benefits and Drawbacks

The benefits of a defined benefit plan are:
  1. You, as an employee, do not contribute to the fund. The employer contributes and manages the pension fund for you.
  2. Your employer is responsible for the risks associated with the investment and planning of the fund.
  3. You receive a guaranteed income at retirement based on a formula that is fixed and easy to understand.
Some of the drawbacks of a defined benefit plan are:
  1. Employers generally avoid the plan as it involves substantial costs and a complex administrative procedure.
  2. You have less control over the contribution amount or your withdrawal period as the fund is entirely sponsored and managed by the employer.
  3. You might need to work for the employer for a long time to satisfy the pension plan benefits rules.

Choosing a Defined Benefit Plan

You can choose how to receive the retirement benefits in the following ways:
  1. A single lumpsum amount. You will be paid a single lumpsum amount at retirement.
  2. Monthly payments for life. You will get monthly payments calculated based on the length of your career or your income.
  3. An annuity covering yourself and your surviving spouse. You will receive a monthly payment for your lifetime, and after that, your spouse will receive at least 50 percent of the monthly payment for the rest of their life.

Calculating Defined Benefit Plan Payments

In a defined benefit plan, an employer decides on the amount for employees based on an agreed formula. To determine the earnings for your benefits, you will need to average out the past couple of years’ salary before retirement. In addition, you could also take the average of an employee’s salary during their career. You can receive these earnings in either a lump sum or monthly payments. An employer can calculate monthly payments in two ways:
  1. Pay a specific amount per month for retirement. For example, an employer deposits $150 per month for every year of the employee’s service. If the employee has worked for 20 years on retirement, they will receive $3,000 ($150x 20) per month as a retirement benefit.
  2. Base retirement payments on the average income of an employee. Suppose an employee earns an average income of $5,000 per month. In that case, the employer can provide monthly retirement benefits like 20% of the average income, i.e., $1,000 (20% of $5,000) per month.

Maintaining Your Defined Benefit Plan

Although your employer controls and maintains the terms of your defined benefit plan, they still must follow specific rules:
  1. A contribution made to the fund is tax-deferred but becomes taxable at the time of distribution.
  2. No distribution of benefits before the age of 59 1/2 years.
  3. Requires reporting of the plan in Form 5500.
  4. An employer must have an enrolled actuary to determine the level of funding.

Takeaway

Employers can use a defined benefit plan to provide tax-deferred retirement benefits to their employees. It can be a secure way to meet your retirement goals. You can receive the benefits as a monthly plan or lump sum payment on retirement.

What is a Defined Benefit Plan?

View Resource What is a Defined Benefit Plan?
Payroll taxes are taxes that both employees and employers pay based on employees’ wages, tips, commissions, and salaries. The employees’ portion is deducted from each paycheck, and the employer pays their portion directly to the IRS.

Types of Payroll Taxes

Payroll taxes fund Federal social insurance programs such as Social Security, Medicare, and unemployment. While you will also see payroll deductions on your pay stub for Federal, state, and local income taxes and deductions to pay for things like health insurance or 401(k) contributions. They are not considered payroll taxes and have no corresponding employer payments. The following are payroll taxes: Your employer is responsible for making all payroll tax payments to the IRS.

If You are Self-Employed

Self-employment tax is a Medicare and Social Security tax for self-employed individuals. In addition, self-employed individuals must pay both the employer and employee portion of Medicare and Social Security taxes. The self-employment tax rate is 15.3% of net earnings, consisting of a 12.4% Social Security tax and a 2.9% Medicare tax on net profits. The same 2022 wage base limit of $147,000 applies to self-employed individuals to pay Social Security taxes.

Takeaway

Unfortunately, payroll taxes reduces your total gross income. So, your listed salary won’t necessarily reflect the amount you take home. Additional income tax payments and automatic deductions for retirement and healthcare will further reduce your take-home pay. Unlike some other taxes, payroll taxes fund your future Social Security and Medicare benefits when you retire.

Understanding Payroll Taxes

View Resource Understanding Payroll Taxes