What is Payroll Tax? – Smart Money Company

So, your employer has deducted some amount from your salary in the name of Payroll tax and now you want to know what they’re going to do with that amount.

Well, there is no need to worry about it because they aren’t entitled to use this amount for their own payment. They’re going to deliver this amount to the relevant authorities with proper documentation.

The purpose of writing this article is to describe the details of the payroll tax. We’re pretty sure you’d get a detailed answer to your question here. So, without any delay, let’s dive into the details of what is payroll tax.

Understanding The Payroll Tax

The basic definition of the Payroll tax is already understood that it’s the amount an employer deducts from an employee’s salary to deliver that amount to the government. The tax is not just applicable to the salaries but it also includes the bonuses and the tips. In other words, the employer deducts the payroll tax from your overall income.

The tax amount is then paid to the Internal Revenue Service. The federal government divides the tax into different categories such as Federal Income, Social Security, and Medicare.

The government can even use these taxes for workers’ compensation and unemployment compensation. Sometimes, the taxes are used for parks, recreation, and road maintenance. Unemployment insurance is basically the responsibility of the employer. You can get access to these funds if you got terminated from your job.

Social Security Payroll Tax

Social Security Payroll Taxes go to Disability Insurance Trust Fund and Old-Age and Survivors Insurance Trust Fund. These funds are managed by the Secretary of Health, Secretary of Labor, and Secretary of the Treasury.

Medicare Payroll Tax

Medicare Payroll Taxes go to Supplementary Medical Insurance Trust Fund and Hospital Insurance Trust Fund. The first type of funds is used to cover outpatient care, tests and screening, ambulance services, and other things. The second type of funds is used to cover skilled nursing inpatient care, hospital care, and more.

Should I Pay Income Tax?

Many people think that they’re no longer eligible for the income tax because the tax amount is already deducted from their salary. You need to understand that income tax is different from payroll tax. And you cannot escape from the income tax even if your employer has deducted the payroll tax. So, make sure that you file your returns on time otherwise, you’d have to face the consequences.

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