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 New Hampshire (NH), payroll taxes are similar to those in other states with respect to federal obligations. Employers in NH must withhold federal payroll taxes from their employees' wages to fund Medicare and Social Security, known as Federal Insurance Contributions Act (FICA) taxes. These are indicated on pay stubs as MedFICA and FICA. Federal payroll taxes have a wage base limit, meaning income above a certain level is not subject to these taxes. While employers handle the withholding and payment of payroll taxes to the IRS, employees are responsible for ensuring they pay any additional federal income tax owed by April 15. Unlike most states, New Hampshire does not have a general state income tax on wages but does tax interest and dividends income. Employers in NH are not required to withhold state taxes for general income, but they must comply with federal tax withholding requirements. Self-employed individuals in NH are responsible for paying self-employment taxes, which cover their Social Security and Medicare tax obligations.