Employee Payroll Taxes | Meaning & Definition

Employee payroll taxes are compulsory deductions in employees’ wages or salaries, withheld by their employers to finance government programs. These taxes typically include contributions to Social Security and Medicare, as well as federal and state income taxes.
Social Security taxes fund retirement, disability, and survivor benefits, while medical taxes finance healthcare for elderly and disabled individuals. Federal and state income taxes support various public services and programs. Payroll taxes play a crucial role in funding essential social welfare initiatives and government operations.

Types of Employee Payroll Taxes

Employee payroll taxes encompass various mandatory deductions withheld from an employee’s wages by their employer to fund government programs and services. These taxes are crucial for financial social welfare initiatives, healthcare, retirement benefits, and other essential public services.

Here are some main types of employee payroll taxes:

1. Federal income tax
This tax is levied by the federal government on individuals’ income. The amount withheld by an employee’s paycheck depends on factors such as their income level, filing status, and any allowance claimed on their W-4 form.

2. Federal Insurance Contribution Act (FICA) Tax
This is a combination of Social Security and Medicare tax. It is commonly referred to as the FICA tax and is withheld from employees’ paychecks to fund social security and medicare programs.

3. State Disability Insurance (SDI)
In a few states, employees may have a portion of their wages withheld to fund state disability insurance programs, which provide short-term benefits to eligible workers who are unable to work due to a non-work-related illness, injury, or pregnancy.

4. Local Income Tax
Some cities and municipalities impose an additional income tax on residents who work within their jurisdiction. Like state income tax, the rate and rules vary by locality.

What are the responsibilities regarding employee payroll tax?

Completing Tax Forms: Employees are responsible for accurately completing tax forms provided by their employer, such as Form W-4 (Employee’s Withholding Certificate) for federal income tax withholding and any state or local tax withholding forms required.

Providing Updated Information: Employees must inform their employer of any changes to their tax withholding status, such as changes in marital status, dependents, or other factors that may affect their tax withholding.

Reviewing Pay Stubs: Employees should regularly review their pay stubs to ensure that the correct amount of taxes is being withheld from their paychecks. Any discrepancies should be promptly reported to the employer.

Filing Tax Returns: Employees are responsible for filing their tax returns annually, reporting all income earned during the tax year, including wages, tips, bonuses, and other compensation. This ensures that the correct amount of taxes is paid to the government.