Payroll Tax

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DEFINITION of 'Payroll Tax'

Tax an employer withholds and/or pays on behalf of their employees based on the wage or salary of the employee. In most countries, including the U.S., both state and federal authorities collect some form of payroll tax.

BREAKING DOWN 'Payroll Tax'

Governments use revenues from payroll taxes to fund such programs as Social Security, healthcare, unemployment compensation, worker's compensation and sometimes local governments even require a small tax to maintain and improve local transportation.

On an employee pay stub, payroll taxes deducted are likely to be itemized.

For more on payroll taxes, read How do I determine what to pay in taxes if my employer doesn't withhold payroll taxes?

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