What is payroll tax?

Payroll tax is a tax that employers, and in some cases employees, pay based on the wages, salaries, and tips earned by employees. These taxes fund government programs like social security and Medicare.

The payroll tax includes two types of taxes: those that employers withhold from employees' wages and those paid by employers based on the employee's wage. In the United States, for instance, payroll taxes fund Social Security and Medicare. The current (as of 2021) Social Security tax rate is 12.4%, split evenly between the employer and employee, and the Medicare tax is 2.9%, also split evenly. An additional Medicare surtax of 0.9% applies to high earners.