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 Arkansas, payroll taxes are similar to those in other states, following federal guidelines. Employers are required to withhold a portion of an employee's earnings to cover federal payroll taxes, which include contributions to Medicare and Social Security, known as FICA taxes. These taxes are itemized on pay stubs as MedFICA and FICA. There is a cap on the income subject to payroll taxes, meaning that earnings above a certain threshold are not taxed for these purposes. While employers handle the withholding and remittance of payroll taxes to the IRS, income tax is ultimately the responsibility of the employee. Employers withhold income tax based on federal tables and submit it to the U.S. Treasury, but employees must ensure they pay any additional tax due by April 15 or file for a refund if they have overpaid. Arkansas also imposes a state income tax, which employers are generally responsible for withholding and paying to the state treasury. Self-employed individuals in Arkansas must pay self-employment taxes, which serve a similar purpose to payroll taxes for employees.