Payroll Tax

Payroll Tax refers to taxes that employers are required to withhold from employees’ wages, as well as taxes that employers pay based on employee wages. These taxes primarily fund social insurance programs, including Social Security and Medicare in the United States.

Payroll taxes typically include:

1. Employee Contributions: These are withheld from employees’ paychecks and include federal income tax, Social Security tax, and Medicare tax.

2. Employer Contributions: Employers are also responsible for matching certain payroll taxes, such as the Social Security and Medicare taxes.

For example, in the U.S., the current Social Security tax rate is 6.2% for employees and employers, while the Medicare tax is 1.45%. This means that an employee earning $50,000 annually would have $3,100 (6.2% of $50,000) withheld for Social Security, and an additional $725 (1.45% of $50,000) for Medicare, with the employer matching these amounts.