Introduction to Understanding Your Payroll Taxes

If you are like many young Americans, when you got your very first paycheck at the burger joint, department store, or wherever else you worked, you probably suffered a bit of tax shock as you saw a chunk of your hard-earned money taken back by your employer. It’s as though you were working for the IRS for an entire day or two each week. Indeed, if you were to satisfy your tax obligations first, starting on January 1, they wouldn’t end until April if you were the average American.

Ever wonder what all those taxes out of your paycheck are for? You should. The government takes a certain percentage of your wages to fund various programs that Americans can take advantage of. On the federal level, Social Security, Medicare and federal unemployment taxes fund these programs, while the income tax funds a broader base of programs. In many—but not all—states, unemployment and income taxes fund payments of unemployment insurance and many state initiatives. Locally, local income taxes support the cities and counties you live and work in. These taxes are paid on a certain percentage of your income and are automatically taken out of your paycheck by your employer. While you do have some say in how much income tax is taken out of your check, you have no say in how much Medicare, Social Security and Unemployment taxes are withheld.

Let’s take a look at payroll taxes in more depth.