Independent contractors, unlike W-2 employees, will not have any federal tax deducted from their pay. However, this tax payment is divided in half between the employer and the employee. The FICA rate due every pay period is 15.3% of an employee’s wages. These taxes include Social Security tax, income tax, Medicare tax and other state income taxes that benefit W-2 employees.īoth employers and employees split the Federal Insurance Contribution Act (FICA) taxes that pay for Social Security and Medicare programs. This means that employers withhold money from employee earnings to pay for taxes. These forms report the annual salary paid during a specific tax year and the payroll taxes that were withheld. W-2 employees are workers that get W-2 tax forms from their employers. Taxpayers can lower their tax burden and the amount of taxes they owe by claiming deductions and credits. are calculated based on tax rates that range from 10% to 37%. In addition to this, most people pay taxes throughout the year in the form of payroll taxes that are withheld from their paychecks. Nearly all working Americans are required to file a tax return with the IRS each year.

The federal personal income tax that is administered by the Internal Revenue Service (IRS) is the largest source of revenue for the U.S. The Federal Income Tax: How Are You Taxed? Photo credit: ©/Veni

Simple household budget worksheet