Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their employees.[1] By law, some payroll taxes are the responsibility of the employee and others fall on the employer, but almost all economists agree that the true economic incidence of a payroll tax is unaffected by this distinction, and falls largely or entirely on workers in the form of lower wages.[2] [3] [4] Because payroll taxes fall exclusively on wages and not on returns to financial or physical investments, payroll taxes may contribute to underinvestment in human capital, such as higher education.
The Australian federal government (ATO) requires withholding tax on employment income (payroll taxes of the first type), under a system known as pay-as-you-go (PAYG).
The individual states impose payroll taxes of the second type.
All Austrian residents are subjects to Austrian income tax. The tax base consists of their worldwide income, including: trade, business, profession, employment, investments and property. A person is considered a resident after a 6-month stay in Austria.
Non-residents are taxed only on income coming from Austrian source/activity.
The income tax is progressive, the percentage increases with amount of income in Euros.
Tax rates for personal income:
There are no taxes imposed on inheritance, gifts or estate in Austria. Austria has no luxury tax.
Acquisition of a real estate is taxed according to the value of estate. The rates are following:
The real estate tax is paid annually. The rates vary for every municipality.
The value-added tax rate is 20% for every supply of goods provided to customers. For special goods listed below the rate is lower - either 13% or 10%. Products with a lower rate value-added tax are for example books, food or cultural events. There are exceptions for certain goods for which the rate is zero.
Value-added tax returns are filed monthly or quarterly by the 15th day of the following month.
Employees are provided with a standard allowance of EUR 132 for any work related expenses. Receipts are required.
Expenses related to production or collection of income are usually considered as deductible. The expenses are for example training costs, work equipment and special work clothes, membership fees to certain organisations, etc.
There is a tax relief for homeworking. Employees may receive up to EUR 3 per day spent exclusively working from home and there is an upper limit of EUR 300 per year. If the amount paid by employer is lower than the maximum (EUR 300) then the employee has the right to include the difference as an income related expense.
Expenses for ergonomic office furniture are deductible and taken as income related expensive. This applies even for ergonomic office furniture purchased for home office, only if the employee works at least for 26 days per year at home. The limit is EUR 300 per year.
Special expenses: charitable contributions are deductible up to 10% of the current year's taxable income.
Family bonus plus: reduces the calculated tax, annually EUR 2000 per child up to 18 years old, living in Austria. Can be split between both parents - then they are entitled to 50%. For children between 19 - 24 up to EUR 650 per year.[5]
In Bermuda, payroll tax accounts for over a third of the annual national budget, making it the primary source of government revenue.[6] The tax is paid by employers based on the total remuneration (salary and benefits) paid to all employees, at a standard rate of 14% (though, under certain circumstances, can be as low as 4.75%). Employers are allowed to deduct a small percentage of an employee's pay (around 4%).[7] Another tax, social insurance, is withheld by the employer.
See also: Taxation in Brazil.
In Brazil, employers are required to withhold 11% of the employee's wages for Social Security and a certain percentage as Income Tax (according to the applicable tax bracket). The employer is required to contribute an additional 20% of the total payroll value to the Social Security system. Depending on the company's main activity, the employer must also contribute to federally funded insurance and educational programs.
There is also a required deposit of 8% of the employee's wages (not withheld from him) into a bank account that can be withdrawn only when the employee is fired, or under certain other extraordinary circumstances, such as serious illness (called a "Security Fund for Duration of Employment"). All these contributions amount to a total tax burden of almost 40% of the payroll for the employer and 15% of the employee's wages.
The Northwest Territories in Canada applies a payroll tax of 2% to all employees. It is an example of the second type of payroll tax, but unlike in other jurisdictions, it is paid directly by employees rather than employers. Unlike the first type of payroll tax as it is applied in Canada, though, there is no basic personal exemption below which employees are not required to pay the tax.[8]
Ontario applies a health premium tax to all payrolls on a sliding scale up to $900 per year.[9]
See also: Taxation in China.
In China, the payroll tax is a specific tax that is paid to provinces and territories by employers, not by employees. The tax is deducted from the worker's pay. The Chinese Government itself requires only one tax to be withheld from paychecks: the PAYG (or pay-as-you-go) tax, which includes medicare levies and insurances.
Tax calculations and contributions differ from city to city in China, and each city's data will be updated yearly.
Taxable Income = Gross Salary – Social Benefits – ¥3,500 IIT = Taxable Income x Tax Rate – Quick Deduction Net Salary = Gross Salary – Social Benefits – IIT
See also: Taxation in Croatia.
In Croatia, the payroll tax is composed of several items:
See also: Taxation in the Czech Republic. The income tax in the Czech Republic is progressive. The primary tax rate is 15% of gross income, but for an annual salary that is 48 times bigger than the average monthly salary (38.911 CZK in 2022, around 1.600 EUR), the rate is 23%. That applies only to the difference. The minimum wage to pay income tax is 27.840CZK in 2021 (approx. 1140EUR).[10]
For people with trade certificates, the rate applies only to 40% of their revenue. The remaining 60% can be deducted as a standard expense. Freelancers also have to file an Income tax return every year.
Taxpayers can apply a few tax deductions, such as a deduction for a child (starting at approx. 600EUR annually in 2021), for being a student (approx. 160EUR in 2021), for a dependent spouse (approx. 1000EUR in 2021) and more.[11]
Health and social insurance are mandatory and a part of a payroll tax. The health insurance rate is 13,5%. For employees with a salary higher than the minimum wage (16.200CZK in 2022, approximately 660EUR), 9% pay the employers, and only 4,5% pay the employees. Trade license workers pay it themselves. Categories that do not have to pay health and social insurance are, for example, students or people registered at the unemployment department. The social insurance rate is 31,5% for employees (6,5% paid by the employee and 25% by the employer) and 29,2% for freelancers.[12]
The income tax makes up to half of the national income. The health and social insurance make another 30-40%.[13]
See also: Taxation in Finland. In Finland, there are several payroll taxes:
See also: Taxation in France.
In France, statutory payroll tax only covers employee and employer contributions to the social security system. Income tax deductions from the payroll are voluntary and may be requested by the employee, otherwise, employees are billed 2 mandatory income tax prepayments during the year directly by the tax authority (set at 1/3 of the prior year's final tax bill). Employee payroll tax is made up of assigned taxes for the three branches of the social security system and includes both basic and supplementary coverage. Different percentages apply depending on thresholds that are multiples of the social security earnings ceiling (in 2012 = 36,372 euro per year).[23]
Contributions for salaries between the minimum wage and 1.6 times the minimum wage are eligible to relief (known as Fillon relief) of up to 28 percentage points of employer contributions, effectively halving employer non-wage costs.[24]
| Medical, Maternity, Invalidity, Death, Solidarity | None | 13% | ||
| Family Benefits | 5.25% | |||
| Old Age Minimum | 6.9% | 0.4% | 8.55% | 1.9% |
| Unemployment | 0.95% | None | 4.05% | None |
| Insolvency | None | 0.3% | ||
| Accident | Variable | |||
| Autonomy & Solidarity Contribution | 0.3% | |||
| Pension Supplement | 3.1% | 1.2% | 4.65% | 0.8% |
| Housing Aid | 0.5% | 0.5% | ||
| General Social Contribution | 9.2% | None | ||
| Social Security Debt Reimbursement | 0.5% | |||
See also: Taxation in Germany.
German employers are obliged to withhold wage tax on a monthly basis. The wage tax withheld will be qualified as prepayment of the income tax of the employee in case the taxpayer files an annual income tax return. The actual tax rate depends on the personal income of the employee and the tax class the employee (and his/her partner) has chosen. The choice of tax class is only important for withholding tax, and therefore for immediately disposable income. The choice of tax class has no effect on tax refunds.[25]
In addition to income tax withheld, employees and employers in Germany must pay contributions to finance social security benefits. The social security system consists of four insurances, for which the contribution will be (nearly) equally shared between employer and employee (old age insurance, unemployment insurance, health insurance and nursing care insurance). Contributions are payable only on wages up to the social security threshold:
| Annual amounts 2019 | Threshold West Germany | Threshold East Germany | |
|---|---|---|---|
| Health- and Nursing Care insurance | 53,100 Euro | 53,100 Euro | |
| Old Age- and Unemployment insurance | 78,000 Euro | 69,600 Euro |
In addition, there are some insurances which are covered by the employee only (accident insurance, insolvency insurance, contribution to the maternity allocation, contribution for sick pay allocation for small companies). The following table shows employee and employer contributions by category for the year 2015.
| category | Employee | Employer | Notes | |
|---|---|---|---|---|
| Old Age (pension) | 9.35% | 9.35% | ||
| Health | 7.3% | 7.3% | In addition, the health insurance will impose a surcharge up to 0.9%, to be paid by the employee only. | |
| Unemployment | 1.5% | 1.5% | ||
| Nursing Care | 1.175% | 1.175% | 1.425% childless employees over 23 years old1.675% in Saxony | |
| Accident | 1.6% | depends on risk covered | ||
| Sick Pay (AOK, 80%) | 0.7% | Depends on coverage and health insurance. | ||
| Maternity (AOK) | 0.24% | |||
| Insolvency (AOK) | 0.15% | Payment of outstanding salary in case of bankruptcy |
See also: Taxation in Greece.
An employer is obligated to deduct tax at source from an employee and to make additional contributions to social security as in many other EU member states. The employer's contribution amounts to 28.06% of the salary. The employee's contribution is 16%. [26]
See main article: Salaries tax.
In Hong Kong, salaries tax is capped at 15%.[27] Depending on income, employers fall into different tax brackets.
See also: Taxation in Sweden.
In 2018, the Swedish social security contribution paid by the employer is 31.42 percent, calculated on top of the employee's salary. The percentage is lower for old employees.[28] The other type of Swedish payroll tax is the income tax withheld (PAYE), which consists of municipal, county, and, for higher income brackets, state tax. In most municipalities, the income tax comes to approximately 32 percent, with the two higher income brackets also paying a state tax of 20 or 25 percent respectively. The combination of the two types is a total marginal tax effect of 52 to 60 percent.[29]
According to a 2019 study in the American Economic Review, a large employee payroll tax cut for young workers did not lead to increases in wages for young workers, but it did lead to an increase in employment, capital, sales, and profits of firms with many young workers.[30] [31]
In the United Kingdom, pay as you earn (PAYE) income tax and Employees' National Insurance contributions are examples of the first kind of payroll tax, while Employers' National Insurance contributions are an example of the second kind of payroll tax. There are currently (February 2022) five PAYE income tax bands in Scotland and four elsewhere; see for details. Both income tax and National Insurance contributions are paid only on income above a lower threshold. In Scotland this threshold is progressively eliminated for the highest earners, beginning at £100,000 per year.[32]
See also: Taxation in the United States and Federal Insurance Contributions Act tax. In the United States, payroll taxes are also called employment taxes by the Internal Revenue Service.[33]
In the United States, payroll taxes are assessed by the federal government, some of the 50 states and numerous cities. These taxes are imposed on employers and employees and on various compensation bases and are collected and paid to the taxing jurisdiction by the employers. Most jurisdictions imposing payroll taxes require reporting quarterly and annually in most cases, and electronic reporting is generally required for all but small employers.[34]
See main article: Federal Insurance Contributions Act tax.
Federal social insurance taxes are imposed on employers[35] and employees,[36] ordinarily consisting of a tax of 12.4% of wages up to an annual wage maximum ($118,500 in wages, for a maximum contribution of $14,694 in 2016) for Social Security and a tax of 2.9% (half imposed on employer and half withheld from the employee's pay) of all wages for Medicare.[37] The Social Security tax is divided into 6.2% that is visible to employees (the "employee contribution") and 6.2% that is visible only to employers (the "employer's contribution"). For the years 2011 and 2012, the employee's contribution had been temporarily reduced to 4.2%, while the employer's portion remained at 6.2%,[38] but Congress allowed the rate to return to 6.2% for the individual in 2013.[39] To the extent an employee's portion of the 6.2% tax exceeded the maximum by reason of multiple employers, the employee is entitled to a refundable tax credit upon filing an income tax return for the year.[40] [41]
See main article: Tax withholding in the United States.
Federal, state, and local withholding taxes are required in those jurisdictions imposing an income tax. Employers having contact with the jurisdiction must withhold the tax from wages paid to their employees in those jurisdictions.[42] Computation of the amount of tax to withhold is performed by the employer based on representations by the employee regarding their tax status on IRS Form W-4.[43]
Amounts of income tax so withheld must be paid to the taxing jurisdiction, and are available as refundable tax credits to the employees. Income taxes withheld from payroll are not final taxes, merely prepayments. Employees must still file income tax returns and self assess tax, claiming amounts withheld as payments.[44]
See main article: Federal Unemployment Tax Act.
Employers are subject to unemployment taxes by the federal[45] and all state governments. The tax is a percentage of taxable wages[46] with a cap. The tax rate and cap vary by jurisdiction and by employer's industry and experience rating. For 2009, the typical maximum tax per employee was under $1,000.[47] Some states also impose unemployment, disability insurance, or similar taxes on employees.[48]
Employers must report payroll taxes to the appropriate taxing jurisdiction in the manner each jurisdiction provides. Quarterly reporting of aggregate income tax withholding and Social Security taxes is required in most jurisdictions.[49] Employers must file reports of aggregate unemployment tax quarterly and annually with each applicable state, and annually at the Federal level.[50]
Each employer is required to provide each employee an annual report on IRS Form W-2[51] of wages paid and Federal, state and local taxes withheld. A copy must be sent to the IRS, and some state governments also require a copy. These are due by January 31 and February 28 (March 31 if filed electronically), respectively, following the calendar year in which wages are paid. The Form W-2 constitutes proof of payment of tax for the employee.[52]
Employers are required to pay payroll taxes to the taxing jurisdiction under varying rules, in many cases within one banking day. Payment of Federal and many state payroll taxes is required to be made by electronic funds transfer if certain dollar thresholds are met, or by deposit with a bank for the benefit of the taxing jurisdiction.[53]
Failure to timely and properly pay federal payroll taxes results in an automatic penalty of 2% to 10%.[54] This is called the Trust Fund Recovery Penalty. Similar state and local penalties apply. Failure to properly file monthly or quarterly returns may result in additional penalties. Failure to file Forms W-2 results in an automatic penalty of up to $50 per form not timely filed.[55] State and local penalties vary by jurisdiction.
A particularly severe penalty applies where federal income tax withholding and Social Security taxes are not paid to the IRS. The penalty of up to 100% of the amount not paid can be assessed against the employer entity as well as any person (such as a corporate officer) having control or custody of the funds from which payment should have been made.[56]