Tax withholding comes through the region of gift an employer. Employed staff taxes deserve to be damaged down right into payroll taxes and also income taxes. Most civilization use the terms interchangeably. But when friend hear about a payroll tax deferral, you more than likely want to understand the specific difference in between payroll taxes vs. Revenue tax.

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Income tax vs. Payroll taxation at a glance

Payroll tax and also income tax are technically different groups, but you require to understand both come withhold employed staff taxes. 

There space a variety of reasons why it’s vital to know the difference between the 2 groups. You might need to recognize the difference to:

Understand what a payroll taxes deferral meansKnow what taxation to withhold indigenous fringe services (e.g., educational assistance)Learn just how the government uses the funds

So, exactly how are payroll taxes different from personal income taxes?

Payroll tax consists of society Security and Medicare taxes, otherwise known as commonwealth Insurance contribute Act (FICA) tax. FICA taxes is an employer-employee tax, meaning both you and also your employees contribute to it. Payroll taxes is a percentage of an employee’s pay.

Income tax is made up of federal, state, and local earnings taxes. Uneven exempt, every employee pays federal revenue tax. Many states have secondary state earnings tax. Part localities additionally have a local income tax. Revenue tax amounts are based upon a variety of factors, such together an employee’s type W-4 and also filing status. 


The difference in between payroll tax and also income tax also comes down to what the counting fund. Whereas revenue taxes go to a basic government fund, payroll taxes particularly go to social Security and also Medicare funds. 

Now, let’s take a watch at wherein payroll and income taxes space similar. To start, you have to withhold both native an employee’s wages before you can give them your take-home pay. And after withholding both taxes, you must deposit and report them to the IRS. Your depositing schedule is the same for both payroll and also income taxes. You also report both taxes on the same form (Form 941 or kind 944). But, federal earnings taxes and also payroll taxes have actually separate currently on the reporting form.

A much more in-depth look at payroll tax vs. Revenue tax

After analysis the basic differences in between the 2 taxes, girlfriend may have some brand-new questions. Read on to find out what is payroll taxation vs. Revenue tax.

What is payroll tax?

Payroll tax offers a level tax rate, meaning it is a portion that girlfriend withhold native employee wages. Withhold 7.65% of every employee’s gross incomes from your pay. And, add a corresponding 7.65%.

So, if an employee earns $500 every paycheck, you would certainly withhold $38.25 ($500 X .0765) from their paycheck. You also need to contribute $38.25 for the employee portion.

Let’s breakdown the portion by society Security and Medicare.

Social security tax is 6.2%. Over there is a Social protection wage basic limit, so you only have to withhold as much as a details amount. 

Medicare taxation is 1.45%. Unequal Social protection tax, there is no Medicare wage basic limit. Instead, there is second Medicare tax. After an employee earns above the extr Medicare taxation threshold, withhold an additional 0.9% of their wages. That means you will withhold 2.35% for Medicare with the added tax (0.9% + 1.45%). However, girlfriend only contribute 1.45%.

You’re probably wondering — what is the purpose of payroll count exactly? Again, payroll taxes money Social Security and also Medicare programs. This contains retirement, disability, health and wellness care, hospice care, and survivor the deceased worker benefits.

What is income tax?

Income tax refers to federal, state, and local revenue taxes. Unlike payroll tax, federal revenue tax is not one level rate. Instead, it supplies a steady tax rate. 

Federal income tax relies on her employee’s type W-4 info (e.g., filing status, dependents, and additional withholding requests). When you rental an employee, they have to fill out kind W-4, Employee’s Withholding Certificate. One employee’s wages and pay frequency also influence their federal revenue tax amount. 

To determine exactly how much to withhold for federal income tax, usage IRS publication 15. There room two tax withholding table methods—percentage and wage bracket. Usage the information on the employee’s kind W-4 and also their weekly wages and also frequency to number out their federal revenue tax deduction.

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State revenue tax works likewise to federal revenue tax. If over there is state revenue tax, friend will give your employee a state income tax withholding form. State revenue tax deserve to either be a flat or gradual rate. 

Localities may assign a level rate, dollar amount, or steady rate. Consult your locality for an ext information on local income taxes. 

Income taxes money public services choose defense, education, and transportation.

Things to save in mind

Again, you must withhold both payroll and also income count from your employees’ paychecks. 

Doing payroll through hand is an choice for deducting payroll and income taxes, yet this have the right to be time consuming and lead to mistakes. The distinction between payroll vs. Earnings tax is even an ext important as soon as you gain into fringe benefits and taxation. Some types of fringe benefits room exempt indigenous federal revenue tax but not payroll tax. 

If you need aid calculating exactly how much to withhold native an employee’s salaries for counting (and as soon as to withhold it), think about using payroll software. 

And, last yet not the very least … If you’re coming here due to the fact that you want to know what the new payroll taxes deferral under the president’s executive orders needs you come do, this is the short answer. The 2020 payroll taxation deferral only used to the social Security section of payroll taxes. So if you deferred Social defense tax collection, you must have continued withholding Medicare and income tax. 

So, the next time who asks you, Is payroll tax the same as revenue tax?, you deserve to dazzle them v the an essential differences in between the two. 

Make payroll much easier on yourself. Patriot’s digital payroll calculates counting on employee wages. And, our Full company payroll services alternative will deposit and paper taxes because that you. Shot either for complimentary today!

This write-up has been updated native its initial publication date of September 6, 2017.