A payroll tax is a percentage of the employee’s wages, salaries, and tips withheld by the employer and paid to the government on behalf of the employee. For example, federal payroll taxes are deducted from the employee’s earnings and paid to the Internal Revenue Service (IRS).

Payroll taxes are designated to fund specific government programs and income taxes are paid to the U.S. (or state) treasury for general expenses. For example, federal payroll taxes are deducted to fund Medicare and Social Security programs; are known as Federal Insurance Contributions Act (FICA) taxes; and are labeled as MedFICA and FICA on employee pay stubs. Payroll taxes are levied only up to a certain income level, and any income above that level is not subject to payroll taxes.

Although the employer is responsible for payment of payroll taxes, income tax is the employee’s responsibility. For federal income taxes the employer will typically withhold a percentage of the employee’s wages based on the federal withholding table and submit the funds withheld to the U.S. treasury—but it is the employee’s responsibility to pay any additional income tax due by the April 15 deadline—or to seek a refund if the amounts withheld by the employer are more than the employee owes. Most states and some cities and counties also impose income taxes—much of which may be withheld by the employer and paid to state, city, or county treasury.

Self-employed persons are also required to remit payroll taxes, and these are referred to as self-employment taxes.

In Alaska (AK), there is no state-level payroll tax, as Alaska does not have a state income tax. However, employers in Alaska are required to withhold federal payroll taxes from their employees' wages to fund federal programs such as Social Security and Medicare. These federal payroll taxes are known as Federal Insurance Contributions Act (FICA) taxes and are reflected on employee pay stubs as MedFICA and FICA. The responsibility for withholding the correct amount of federal payroll taxes lies with the employer, while the employee is responsible for ensuring that their federal income tax obligations are met, either through withholding or by making payments by the April 15 deadline. Self-employed individuals in Alaska must pay self-employment taxes, which serve a similar purpose to payroll taxes for employees. These taxes are remitted directly to the Internal Revenue Service (IRS) to cover their Social Security and Medicare contributions.