Keith Towns leads as principal of the Emerge Financial Group in Suisun City, California. There, Keith Towns offers tax advice to both businesses and individuals.
Taxes on an individual's earnings are not limited to income tax. There is another requirement known as the payroll tax, which includes Social Security and Medicare taxes. The federal government requires employers to withhold half of these taxes from employee paychecks, while the employer pays the remaining half. Self-employed persons pay the entire amount due.
Income taxes are due on all income including stock gains, bank account interest, and retirement plan distributions, while payroll taxes apply only to income earned from employment. The federal government takes the Medicare tax as a percentage of all earned income. There are caps on the amount of income to which the Social Security tax applies, and any earnings above that limit are not subject to the tax.
Another key difference is that income tax is progressive, which means that individuals who earn more will owe a higher percentage of his or her income. In contrast, the rate for payroll tax is consistent across all income levels.
