Final answer:
The selection of payroll deduction formulas is based on the information provided on the W-4 form, and this choice affects the employee's net pay and year-end tax liability. Payroll taxes include both employee and employer contributions to Social Security and Medicare.
Step-by-step explanation:
The payroll deduction formulas for computer programs that you select will depend on the information provided on forms like the W-4, which you filled out at the start of your job. This impacts the amount taken out of your paycheck for taxes, ensuring that you meet your tax obligations for local, state, and federal governments. When you plan for deductions, you should consider the trade-off between taking home more money in your pay now versus owing more at tax time.
Payroll taxes are split between the employer and the employee, with 6.2% for Social Security and 1.45% for Medicare being deducted from the employee's paycheck. Economists note that, in effect, the employee bears the cost of the employer's share through reduced wages. Therefore, understanding the nature of payroll deductions and employer taxes is fundamental to selecting the right formula for your individual situation.