Payroll Taxes

What are Payroll Taxes?

Payroll taxes are taxes levied by government on an employer which is directly related to the size of the wages and salary outlay.

The amount levied comprises two amounts, employee payroll taxes paid by the employee, and employer payroll taxes paid by the employer.

The employee payroll taxes are deducted from the employees pay by the employer and handed over to the government on behalf of the employee, they are usually referred to as withholding tax or in the UK as pay as you earn. These payroll taxes are not an additional cost to the business as they already form part of the gross pay cost as shown in the diagram below.

Employer and Employee Payroll Tax
Gross Pay Employer tax
Net pay Employee tax Deductions Employer tax

The employer portion of payroll taxes are paid directly by the employer and are a cost to them in addition to the gross pay cost, as seen above. Employers payroll taxes normally fund insurance and social security systems within the country.

For further information see the Wikipedia payroll tax definition.

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Last modified March 23rd, 2016 by Team

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