Team member payroll taxes are taxes that employers generally withhold from a team member's wages and remit to the appropriate federal, state, or local tax authorities, as required by applicable law.
These withholdings help fund programs such as income taxes, Social Security, Medicare, and certain state or local programs.
Why team member payroll taxes exist
Team member payroll taxes help fund a variety of government programs and public services, including:
- Income taxes → Government operations, infrastructure, and public services
- Social Security → Retirement, disability, and survivor benefits
- Medicare → Healthcare programs
- State and local programs → Income taxes, disability insurance, paid leave, and other programs where applicable
Unlike employer payroll taxes, team member payroll taxes are generally withheld from a team member's wages.
Common federal team member payroll taxes
1. Federal income tax
Federal income tax is generally withheld based on information the team member provides on Form W-4, along with applicable federal withholding rules.
The amount withheld may depend on factors such as:
- Filing status
- Multiple jobs
- Dependents
- Additional withholding elections
- Other adjustments reflected on the team member's Form W-4
The amount withheld is not necessarily the team member's final federal income tax liability, which is generally determined when the team member files an annual tax return.
2. Social security tax
- Team member rate: Generally 6.2% of taxable wages
- Wage base: Applies up to the annual Social Security wage limit
- Purpose: Helps fund retirement, disability, and survivor benefits
In most situations, employers contribute a matching amount.
3. Medicare tax
- Team member rate: Generally 1.45% of taxable wages
- Wage base: No wage limit applies
- Purpose: Helps fund the Medicare program
Employers generally contribute a matching amount.
4. Additional medicare tax
Certain team members with wages above applicable federal thresholds may be subject to an Additional Medicare Tax.
Employers generally begin withholding this tax when required under federal rules. Unlike the standard Medicare tax, employers generally do not match this additional amount.
Common state and local team member payroll taxes
State and local payroll tax requirements vary by jurisdiction.
1. State income tax
Some states require employers to withhold state income tax from team member wages, while others do not.
Where applicable, withholding is generally based on state tax rules and team member withholding elections.
2. Local income taxes
Certain cities, counties, or other local jurisdictions may require additional payroll tax withholding.
Whether a local tax applies depends on the applicable laws where the team member works or resides.
3. State disability insurance (SDI)
Some states require team member payroll deductions to help fund state disability insurance programs.
Program availability, contribution requirements, and benefit rules vary by state.
4. Paid family leave (PFL)
Some jurisdictions fund paid family or medical leave programs through team member payroll deductions, employer contributions, or a combination of both.
Funding requirements vary by jurisdiction.
Things to keep in mind
Team member payroll tax withholding can vary based on several factors, including:
- Federal, state, and local tax laws
- Team member wages
- Form W-4 and any applicable state withholding forms
- Tax rates and wage limits
- The team member's work and residence locations
- State or local payroll tax requirements
Payroll tax withholding is separate from other payroll deductions, such as retirement contributions, health insurance premiums, wage garnishments, or other voluntary or required deductions.
The amount withheld from a team member's paycheck may not equal the team member's final tax liability, which is generally determined when tax returns are filed.
Mercury Payroll helps businesses manage payroll and related administrative tasks. Mercury does not provide legal, tax, accounting, or investment advice and does not act as your employer, professional employer organization (PEO), employer of record (EOR), or plan fiduciary. You remain responsible for your legal and regulatory obligations, including worker classification, wage-and-hour requirements, tax withholding and reporting, and benefits eligibility.