Payroll Tax

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Definition of 'Payroll Tax'

A payroll tax is a tax levied on the wages, salaries, and other compensation of employees. Payroll taxes are typically collected by employers and are then remitted to the government. The most common types of payroll taxes are the federal income tax, the Social Security tax, and the Medicare tax.

The federal income tax is a progressive tax, which means that the rate of taxation increases as the amount of income increases. The Social Security tax is a flat tax, which means that the rate of taxation is the same for all taxpayers. The Medicare tax is also a flat tax, but it is only levied on wages and salaries up to a certain amount.

The amount of payroll taxes that an employer must withhold from an employee's wages depends on the employee's earnings and the applicable tax rates. Employers are required to file quarterly payroll tax returns and remit the taxes to the government.

Payroll taxes are an important source of revenue for the government. The federal government uses payroll taxes to fund programs such as Social Security and Medicare. State and local governments also use payroll taxes to fund their programs.

Payroll taxes can be a significant expense for employers. However, they are also an important way to ensure that employees are contributing to the government programs that they will benefit from in the future.

In addition to the federal, state, and local taxes that employers are required to withhold from employees' wages, they may also be required to pay other payroll taxes, such as unemployment insurance taxes and workers' compensation taxes. These taxes are designed to protect employees and employers in the event of job loss or workplace injuries.

Payroll taxes are a complex and ever-changing area of law. Employers should consult with a qualified tax advisor to ensure that they are complying with all applicable laws and regulations.

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