• Employers are required by US law to withhold payroll taxes.money money money image by Arman Zhenikeyev from Fotolia.com
  
  Employers are required to withhold the payroll taxes for their employees. They must submit these taxes to the U.S Internal Revenue Service, state and local revenue departments on a quarterly, semi- yearly or yearly basis. The timing of each withholding payment depends on employment tax law. Taxes employees pay consist of income tax, social security and Medicare. Employers pay the required unemployment taxes for employees.
  
  

Withholding Thresholds

• As of 2010, the Internal Revenue Service requires that employees making over $600 in a tax year submit a W2 form and pay taxes. The W2 Form is used to determine the amount of withheld taxes based upon the number of dependents. Once wages reach $1,700, employers must also withhold Social Security and Medicare taxes. Although Social Security and Medicare taxes are combined under the Federal Insurance Contributions Act, they actually are calculated as separate taxes by the employer.
  
  

Federal Income Tax

• Employees must pay federal income tax. Withholding taxes are based upon the number of dependents claimed. The federal government expects employers to withdraw taxes on any pensions, bonuses or commissions paid to their employees. At the end of the year, employees pay income tax based upon the tax rates established by federal and state governments. The income tax rate will vary based upon the individual’s level of income and the amount of deductions they claim at the end of the year to lower their gross income.
  
  

Local Income Taxes

• In addition to federal income taxes, state, county and city governments also require employees to pay income tax. For example, in Alabama, the counties of Attalla, Gadsden and Rainbow City charge employees an income tax of 2 percent. Cities, such as Columbus Ohio, also charge employees a city income tax that employers are required to administer as a part of payroll withholding.
  
  

Social Security

• The first Social Security tax was enacted in 1937 as a way of providing financial assistance to the elderly after retirement. Employees then paid 1 percent. The current tax rate is split between the employer and employee, each paying 6.2 percent. Self-employed individuals pay the total amount of 12.4 percent themselves. During a calendar year, withholding of Social Security taxes stop when an employee’s wages have reached $106,800.
  
  

Medicare Tax

• Medicare was enacted in 1965 to provide health care services to people over the age of 65. Medicare taxes are paid by both the employer and the employee. The current Medicare tax rate is 1.45 percent for each. Self-employed individuals pay the full amount of 2.90 percent of income. Unlike Social Security, there is no limit on taxable earnings.