Final answer:
Payroll taxes include deductions from an employee's salary, such as Social Security and Medicare taxes, and employer-paid taxes, which may affect wage levels. Independent contractors in the gig economy must handle both sides of these taxes. Understanding the breakdown and impact of these taxes is crucial for both employees and employers.
Step-by-step explanation:
Understanding Payroll Tax Entries
When discussing the intricacies of payroll, the entries for payroll taxes play a significant role. Payroll taxes are generally categorized into two types: deductions from an employee's wages, and taxes paid by the employer based on employee's wages.
Employee Wage Deductions
Deductions from an employee's wages compose the withholding taxes, which include advance payment of income tax, social security contributions, and various insurances. For instance, in most cases, you will find that the standard deductions include a 6.2% deduction for Social Security and a 1.45% deduction for Medicare from the employee's paycheck.
Employer Paid Taxes
On the other side, the taxes paid by the employer based on the employee's wages are not directly deducted from the employee's earnings but are a cost of employment impacting the employer's finances. Though technically paid by the employer, economists argue that these costs are often indirectly passed down to employees through lower wages, suggesting that the total payroll tax burden may ultimately be borne by the workers.
For those in the gig economy, with a 1099 tax statement, the scenario changes as they are considered independent contractors. Here, they are responsible for paying both the employee and employer portions of the payroll taxes, which can be a significant additional expense.