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 Pennsylvania (PA), payroll taxes consist of federal and state taxes that are withheld from an employee's wages by employers. Federal payroll taxes, which include Social Security and Medicare taxes, are governed by the Federal Insurance Contributions Act (FICA) and are required to be withheld by employers and paid to the IRS. These taxes fund specific government programs and are subject to an income cap, beyond which no payroll taxes are levied. Employers in PA also withhold state income taxes based on state withholding tables and remit them to the Pennsylvania Department of Revenue. While employers handle the withholding and payment of payroll taxes, it is the employee's responsibility to ensure that their federal and state income tax obligations are met, either through withholding or by making additional payments by the tax deadline, typically April 15. Self-employed individuals in PA must pay self-employment taxes, which serve a similar purpose to payroll taxes for employees, and are paid directly to the IRS and the state.