Businesses are required to pay lots of different taxes. In addition to income tax and sometimes sales tax, you’re also responsible for payroll tax.
Lots of business owners don’t understand how payroll tax works, which can lead to compliance issues and hefty fines—especially if you’re trying to calculate these taxes on your own.
In addition to paying the different payroll taxes, you’ll also need to file reports with the appropriate state, local, and federal government agencies.
If you’re lost and need help understanding how payroll tax works, this guide is for you.
What is Payroll Tax?
Payroll tax is imposed by state, federal, and local governments to fund various programs. The taxes come from employer and employee wage withholdings.
A certain percentage of pay from an employee’s wages, salary, and tips are withheld from paychecks. It’s the employer’s responsibility to calculate the withholdings and pay the taxes to the appropriate government agency on the employee’s behalf.
Some payroll taxes are split evenly by employees and employers—the employer will match the employee’s contribution for each payroll cycle.
The Basics of Payroll Tax
Let’s take a closer look at the different types of payroll taxes and how they work. The following sections will help you understand payroll tax at a higher level.
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