what is a payroll tax 
a payroll tax includes the taxes employees and employers pay on wages tips and salaries for employees taxes are withheld from their paychecks and paid to the government by the employer these taxes include federal state and local income taxes it also includes the employee s share of social security and medicare taxes fica which are paid to the federal government taxes that employers must pay include their share of fica as well as federal and state unemployment taxes the employer s share of payroll taxes is paid directly by the employer and not withheld from employees paychecks understanding payroll taxesfederal payroll taxes include social security and medicare contributions which constitute the federal insurance contributions act fica tax in the united states these are labeled as medfica and fica on pay stubs federal income tax which is also withheld from employee paychecks goes into the general fund of the u s treasury 1most states as well as some cities and counties impose income taxes which are also withheld as payroll taxes in addition employers but not employees also pay federal unemployment taxes for each of their employees 2payroll taxes are collected by federal authorities and some state governments in many countries including the u s these payroll tax deductions are itemized on an employee s pay stub the itemized list notes how much is withheld for federal state and municipal income taxes as well as the amounts collected for medicare and social security payments governments use revenues from payroll taxes to fund specific programs including social security healthcare and workers compensation local governments may collect a small payroll tax to maintain and improve local infrastructure and services including first responders road maintenance and parks 3payroll tax amountsthe premise of social security and medicare is that you pay into them during your working years in order to qualify to withdraw these funds after retiring or under certain medical circumstances an employee pays 7 65 of their pay for medicare and social security 6 2 for social security and 1 45 for medicare an employer also pays the same tax of 7 65 for an employee for a combined total of 15 3 4funds paid to social security taxes go into two trust funds the old age and survivors insurance oasi trust fund which pays retirement and survivor benefits and the disability insurance trust fund for disability benefits the secretary of the treasury the secretary of labor the secretary of health and human services the commissioner of social security and two public trustees manage these trust funds 56the social security tax is 6 2 paid by both the employee and the employer for a total of 12 4 in 2024 income above 168 600 in 2024 is not taxed for social security 74president franklin d roosevelt signed the social security act into law on aug 14 1935 to provide a safety net for the disabled and retirees when the program was conceived high wage earners were exempt from paying into the fund and receiving social security benefits however the u s congress replaced the exemption with a cap that usually increases at the same rate as wages 8910as noted above payroll taxes also go toward medicare these payroll deductions go into one of two separate trust funds the hospital insurance trust fund the hospital insurance trust fund pays for medicare part a and the associated administration fees part a assists in covering hospital care skilled nursing inpatient care and in some cases home care 11most people don t pay a premium for part a hospital insurance since they likely paid into the program during their working years through the payroll tax the tax for medicare is 1 45 for the employer and 1 45 for the employee for a total medicare tax of 2 9 for individuals that earn over 200 000 an additional 0 9 is charged this additional tax only applies to the employee not the employer 4the other medicare trust fund is the supplementary medical insurance trust fund which assists in paying for medicare parts b and d and other medicare program administration costs part b covers laboratory tests and screenings outpatient care x rays ambulance service and many additional costs part d helps with prescription drugs this trust fund is funded through the authorization of congress that allocates funds the premiums from people who are enrolled in part b and d and other sources such as interest earned on the fund s investments 11unemployment taxesemployers bear the primary responsibility for funding unemployment insurance if they lay off employees those employees are entitled to unemployment benefits the rate of unemployment insurance the employer will pay varies by industry state and federal fees some states also require employees to contribute to unemployment and disability insurance self employment taxesself employed individuals including contractors freelance writers musicians and small business owners must remit payroll taxes as well these are sometimes referred to as self employment taxes unlike most salaried workers self employed people don t have employers to remit payroll taxes on their behalf as a result they must cover both the employer and employee portions of the tax on their own 12the self employment tax rate for 2024 is 15 3 including a 12 4 contribution to social security old age survivors and disability insurance the other portion of the tax is a 2 9 payment to medicare with another 0 9 surtax for medicare on earnings that exceed 200 000 13if you are self employed you can deduct the employer portion of fica taxes as a business expense 13payroll taxes vs income taxesthere is a distinction between a payroll tax and an income tax although both are deducted from paychecks payroll taxes are used to fund specific programs income taxes go into the general funds at the u s treasury 1 state income tax if the state levies any goes into the state s treasury everyone pays a flat payroll tax rate up to a yearly cap income taxes however are progressive rates vary based on an individual s earnings 