Payroll taxes are taken out each pay period based on information provided by the employee. To determine the amount taken out, new employees must complete IRS Form W-4 Employee's Withholding Allowance Certificate.
This form determines the amount of deductions and allowances each employee has. For any current employees who owed taxes in 2009 or received a substantial return, recommend that they complete a new W-4 for 2010.
Payroll tax deductions are based on the marital status and the withholding allowance. An employee may request to pay a higher tax rate to ensure that enough taxes are paid throughout the year to avoid owing.
For instance, an individual that is single and has two allowances may claim single and one. It is the employer's responsibility to ensure taxes are withheld and deposited as directed by the IRS. Employers must withhold earnings for income tax, Medicare tax, social security tax, and federal unemployment tax. The employer must file, deposit, and pay these taxes properly and on time.
The American Recovery and Reinvestment Act of 2010 is another stimulus bill to provide relief for American workers. President Obama signed the bill into effect on February 17 2010. But what does this act do for payroll taxes? It provides the Making Work Pay tax credit.
This act provides a credit of $400 for single individuals and $800 per family. The Making work pay tax credit is another way to try to stimulate the economy and help struggling families and businesses by pushing more money through the economy.
Tax rates for 2010 are similar to the 2009 tax tables. Since the inflation rate increase was much lower this year than in previous years the tax tables haven't changed much either. . Medicare taxes are 6.2% withheld for both employee and employer and the base wage limit remains unchanged from 2009 which is $106,800.
Medicare does not have a wage limit and employee and employers contributions are the same at 1.45%. The personal exception and the standard deduction remains unchanged from 2009-2010 however the overall tax brackets did. Married couples make less than $16,750 and single tax payers making less than $8,375 are in the 10% tax bracket. Married $16,750-$68,000 and single $8,375-$34,000 fall under the 15%.
Overall there has not been a tremendous change in payroll tax in 2010 except for the Making Work Pay credit. However employers should work to update their tax tables as soon as possible. The new payroll tax rates for 2010 must take effect no later than April 1.
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