The United States government uses income and payroll taxes to provide for national programs. Social Security and Medicare are payroll taxes that your employer must take from your paycheck for the federal government before you are paid. The government bases payroll tax rates on percentages, so the more you make, the more you pay.
Social Security taxes provide benefits for retirees and disabled workers. As of 2012, the tax rate for Social Security is 4.2%. There is a limit on the amount of income subject to Social Security tax each year. The limit was $110,100 in 2012, according to the U.S. Internal Revenue Service.
Medicare is also a payroll tax. workers, retirees and their spouses when they reach age 65. As of 2012, the tax rate for Medicare is 1.45%.
The individual income tax is the largest source of federal revenue. It taxes earned income such as commissions, salaries, tips and wages, and unearned income such as interest and dividends. Both individuals and businesses pay federal income taxes.
Your gross pay is the amount you actually earn. Your take-home pay is your gross pay minus various deductions including taxes such as Social Security, Medicare and your federal and state income tax withholding. Your employer sends these taxes to the federal government and state government.
- A young woman holding a pen, doing her taxes image by Christopher Meder from Fotolia.com