Payroll tax is tax an employer withholds or pays on behalf of an employee, as required by law. Both state and federal government collect payroll taxes.
Payroll tax deductions include the following federal income tax withholdings: Social Security tax, Medicare tax, and state income tax, as well as various local tax withholdings. Basically, payroll tax is withheld from an employee’s pay for federal income taxes owed by the employee. The amount of FIT is determined by information an employee provides on his/her W-4.