Do you know that the United States government collected revenue totaling $4 trillion dollars in 2021? Out of this collection, $1.3 trillion accounted for payroll taxes and $1.9 for income taxes.
It’s the responsibility of employers to withhold taxes from their employees. They’ll usually withhold these taxes from the employee’s paycheck. This employment tax from employees’ gross wages is divided into income and payroll tax.
While income and payroll tax are used interchangeably, they’re different. This payroll tax vs. income tax guide should help you better understand.
What Is Income Tax?
This tax is taken out of an employee’s wages and salary. This is the case with payroll tax, but the difference is with the party responsible for paying the tax. In the case of income tax, the employee pays the tax.
This tax will cover your local, state and federal taxes and will be based on the withholding allowance on your Form W-4. The revenue from this tax caters to different services like transportation, education, defense, among others.
What Is Payroll Tax?
Like Income tax, the payroll tax is taxes from employee wages and salaries. The revenue collected from this tax helps support insurance programs such as Medicare and social security. Remember that these two programs make up the second-largest source of revenue by the US government.
Unlike the income tax where the employee contributes, the payroll taxes are split between the employer and employee.
Valuable Payroll Tax vs. Income Tax Best Practices You Should Know
If you plan to manage your income and payroll tax remittance yourself or have someone to do it for you, it’s crucial to do the compilation the right way. Making any errors as you determine the amount owed or delays in remittances can result in fines that your business can’t handle.
The best way to keep the business expenses manageable and business taxes paid is by adhering to different best practices.
Ensure That You Seek the Help of Experts
As a business, you may have an in-house team that helps to manage your payroll. However, it’s advisable to seek the services of HR and consulting professionals like https://www.ignitehcm.com/. Such professionals can help you calculate your withholding and properly set up your records. They’ll even advise you on the right accounting software tools to ensure that you’re organized.
Keep Pay Stubs for Every Worker
Paystubs indicate how you’ve been withholding your worker’s payroll and income taxes. You and your workers can file your taxes conveniently when you create these records.
Adhere To Government Regulations When Remittances Are Due
You should know the correct dates when employment taxes are due. This includes the necessary foams you should fill and when to make your tax payments. If you want to avoid missing any deadline, keep a calendar of the important dates.
Differentiate the Different Types of Taxes
Now that you understand payroll tax vs. income tax similarities and differences, you know they’re separate. This also includes the deductions and calculation amounts. For improved employee satisfaction, ensure that you calculate these taxes accordingly.
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