Final answer:
The Payroll Deductions Online Calculator (PDOC) facilitates the calculation of various payroll tax deductions such as the Canada Pension Plan (CPP), Employment Insurance (EI), and federal and provincial/territorial tax withholdings from an employee's paycheck. These taxes include payments toward social security and insurances. Both employers and employees are responsible for payroll taxes, but in reality, employees might indirectly pay the employer's share through lower wages.
Step-by-step explanation:
The Payroll Deductions Online Calculator (PDOC) is intended for calculating deductions from an employee's wages, such as the Canada Pension Plan (CPP), Employment Insurance (EI), and both federal and provincial/territorial tax deductions. These deductions are forms of withholding taxes, which are part of the payroll taxes that both employers and employees are responsible for. Payroll taxes are crucial as they include advance payments of income tax, social security contributions, and insurances like unemployment and disability.
In the context of payroll taxes, an employee typically sees 6.2% deducted from their paycheck for Social Security and 1.45% for Medicare. However, there is an important consideration noted by economists—it's likely that the employer's portion of the taxes, despite being officially split with the employee, affects the employee indirectly through lower wages. Consequently, employees may ultimately bear the full cost of payroll taxes.
For independent contractors in the gig economy who receive a 1099 tax statement, the situation is different; they must cover both the employee and employer portions of the payroll tax themselves. Understanding these mechanisms is essential for both employers and employees to accurately manage and anticipate their tax obligations.