Employers are required to withhold taxes from the employees’ income to pay different taxes. The taxes are taken out of the employee’s income when processing payroll is known as the payroll taxes and there is more than one kind of payroll tax.

We can put the payroll taxes in two different categories: FICA taxes and income taxes. The FICA taxes are the Social Security and Medicare taxes. The income taxes are at federal, state, and local levels. Regardless of where you live and work, you will pay income taxes but if the state or the local government you’re working at taxes wages, you will pay income tax for that.

The same as the income taxes withheld when processing payroll, employers are required to withhold Social Security and Medicare taxes. Unlike the income taxes where the rates are different for every employee, the Social Security and Medicare taxes are fixed. 

For the 2021 tax year, employers are required to withhold 6.2 percent of the employee’s income for Social Security taxes. Medicare tax rate is much lower at 1.45 percent. Employers also need to pay the same amount of Social Security and Medicare taxes – basically, match it. 

This match is separate from the self-employment tax where the employers pay 15.3 percent of income towards Social Security and Medicare. This is because the employer is responsible for paying both the employee and the employer portion of it. 

Payroll Tax Deferral 

The payroll taxes were deferred for the last quarter of 2020. This didn’t mean that the payroll taxes were going to disappear entirely. Only the Social Security tax was deferred and the deferred taxes were going to be collected between January 1 and April 30, 2021. 

For the five-month-long period, the Social Security tax withheld will be slightly more. But instead of an extra 6.2 percent, the Social Security withheld in total for the first five months of 2021 will be about 10 percent.

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