Payroll taxes at a glance
| Tax | Who pays | Notes |
|---|---|---|
| Social Security (OASDI) 6.2% | Employee + employer each | Applies up to an annual wage base |
| Medicare 1.45% | Employee + employer each | No wage cap |
| Additional Medicare 0.9% | Employee only | On wages above a threshold; no employer match |
| FUTA | Employer only | Federal unemployment; credit for state unemployment taxes paid |
Self-employed taxpayers pay both halves (self-employment tax) on net earnings from self-employment, and deduct one half as an above-the-line adjustment.
Employee vs. independent contractor
Classification turns on the degree of control — behavioral control, financial control, and the nature of the relationship. Misclassification exposes the employer to back payroll taxes, interest, and penalties.
IMPORTANT: An employer that fails to remit withheld payroll taxes faces the trust fund recovery penalty — 100% of the unpaid withheld amounts, assessable personally against any "responsible person" who willfully failed to pay, including officers, bookkeepers, or anyone with authority over disbursements.
Common fringe benefits
| Excluded from employee income | Taxable |
|---|---|
| Employer-paid health insurance premiums | Personal use of a company car |
| Group-term life insurance up to $50,000 of coverage | Coverage above $50,000 (imputed cost) |
| De minimis fringes; qualified employee discounts | Cash and cash equivalents (including gift cards) |
| Working condition fringes; qualified transportation within limits | Most awards not meeting qualified plan rules |
| Dependent care assistance within limits; educational assistance within limits | Excess above statutory limits |
EXAM TIP: Cash is never de minimis. A $25 turkey is excludable; a $25 gift card is taxable wages.