Payroll taxes are payments employers make on behalf of their employees when running payroll.
Any small changes mandated by The Social Security Administration can impact what your business pays to federal, state, and local programs on behalf of their employees.
Payroll taxes are generally calculated based on a percentage of an employee’s gross pay. Employers are responsible for making the calculations and ensuring the right amounts are submitted to the right authorities before the given deadline.
Needless to say, payroll taxes become significantly more complex on a global scale, since you’re likely to be juggling multiple jurisdictions and regulatory requirements at once.
Payroll tax examples & what they’re used for
There are three main types of payroll taxes, including the following:
Medicare tax – tax funding Medicare programs that provide health benefits for people who are either over 65 or have disabilities.
Social Security tax – contributions to the social security system, providing benefits for retirement, income, or disability among others.
Federal unemployment tax – a tax employers are required to pay to offer unemployed people temporary financial support.
Payroll tax VS income tax
While both payroll tax and income tax relate to a person’s income, payroll tax is more focused on the person’s salary. Often, it’s the employer who’s in charge of ensuring this tax is paid. Meanwhile, income tax is primarily handled by the employees themselves, and is more related to their overall income.
In addition, while income tax funds government services and goods, payroll concerns social security-related matters.
Navigating payroll taxes for a global workforce
Managing payroll taxes on a global scale comes with its fair share of challenges. Since each country will have different requirements and these requirements are likely to change, it can be difficult to figure out how to effectively streamline these operations.
A global payments distribution platform that specializes in payroll ensures that regulatory knowledge is up to date and that the payment process is both automated and tailored for the relevant jurisdiction.