The standard way of being paid by an employer is on a W2. You have Federal Income tax, Social Security tax, Medicare tax, State tax (depending on the state you live in) and Local Earned Income tax. There are nine states with no state tax. For starters the Federal income tax withholding is based off your W4 that you fill out when you start employment. We will post another blog soon with help on filling out a W4 properly based on your filing status.
Social Security tax is a flat 6.2% and Medicare tax is a flat 1.45% out of your pay and your employer matches the same percentage. The is your share of paying into this program so that when you are of retirement age, you will collect Social Security benefits and once you turn age 65, you’re eligible for Medicare which covers 80% of your medical costs. At this time will need a supplement for the additional 20% health coverage and a prescription drug plan.
State tax rate varies depending on which state you live in. In PA, we have a flat 3.07% tax rate. PA also has a Local Earned Income tax rate which most places in our area are flat 1%, however Erie City is higher, Cambridge Springs Boro is higher. Your employer is required to withhold the local tax at the higher rate of either where you live vs. where you work rate and is common a refund will not be issued depending on where you live or work.
Another tax assessed to employed individuals in PA is often referred to as the “right to work” tax or Occupation Privilege Tax, but the official name is Local Service Tax. In most areas is $52 per year which is deducted from your pay at $1.00 per week.
If you’re employed as a self-contactor then no taxes are being withheld from your pay and you’re responsible to pay all the taxes when you file.
Municipalities and school districts were also given the right to collect taxes per individual that live in a particular area. This tax is based solely on residency, it is not dependent on employment or property ownership. This tax in our area is referred to as a Per Capita Tax and is usually assessed once a year. Anyone 18 years or older are subject to this tax.
If you have any questions, please contact your local, friendly professionals at Meadville Tax Service at 814-333-2488 or info@meadvilletaxservice.com
