Final answer:
Payroll deductions must include federal income tax withholdings, social security, and Medicare contributions, with standard deductions being 6.2% and 1.45% respectively. Employers also fund pension insurance, deposit insurance, and workman's compensation insurance. Independent contractors bear both employee and employer tax responsibilities.
Step-by-step explanation:
The law requires that payroll deductions include several mandatory withholdings from an employee's wages. These typically consist of an advance payment of income tax, as well as contributions to social security and insurance programs such as unemployment and disability insurance. Specifically, for Social Security, a common deduction is 6.2% of an employee's wages, and for Medicare, it is 1.45%. Employers also contribute a similar amount, which some economists suggest is ultimately borne by employees in the form of lower wages.
Beyond these federal requirements, employers must also contribute to the Pension Benefit Guarantee Corporation when they offer pension plans, pay into the Federal Deposit Insurance Corporation in the case of banks, and provide funds for workman's compensation insurance, which is usually managed at the state level.
In the case of independent contractors or those involved in the gig economy, such individuals are responsible for paying both the employee and employer portions of the payroll taxes, especially if they are providing services under a 1099 tax statement.