Payroll Taxes

by Deborah Z Mark



Let’s talk about everyone’s favorite subject: payroll taxes.

Which taxes are required to be withheld?

  • Federal withholding (employee completes Form W4)
  • State withholding (Arizona employees complete Form A4)
  • Social Security (6.2% of gross wages, which the employer matches)
  • Medicare (1.45% of gross wages, which the employer matches)

Social Security and Medicare together are referred to as FICA (Federal Insurance Contributions Act)


Employees may claim exempt from federal withholding if they meet both requirements listed on Form W4:

  1. Last year I had a right to a refund of all federal income tax withheld because I had no tax liability and
  2. This year I expect a refund of all federal income tax withheld because I expect to have no tax liability

Claiming exempt from federal withholding does not affect state withholding in Arizona.  To claim exempt from state withholding in Arizona, employees must elect zero withholding on their Form A4 and certify that they expect to have no Arizona tax liability for the current taxable year.

What about Social Security and Medicare?

The maximum amount of taxable earnings for Social Security in 2014 is $117,000.  After an employee has earned that amount, employers are no longer required to withhold Social Security tax.

Note:  If an employee changes jobs and works for more than one employer in a year, each employer must withhold Social Security taxes, regardless of what a previous employer withheld and the amount of total income the employee has made year to date.  The employee may then have taxes withheld for the year that exceed the maximum.

Medicare is withheld on all wages.  There is no maximum amount of taxable earnings.

Employees may not exempt themselves from either Social Security or Medicare withholding.


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image: Stuart Miles/