Payroll tax

Definition

"Payroll tax" is an umbrella term covering all wage-based taxes. The major categories: FICA (Social Security + Medicare), FUTA (federal unemployment), SUTA (state unemployment), federal income tax withholding (FIT), state income tax withholding (where applicable), and local payroll taxes (where applicable — e.g., some cities have a payroll tax).

Employer-paid: FICA employer match (7.65%), FUTA (0.6% effective after credit), SUTA (varies). Employee-paid via withholding: FICA employee share (7.65%), FIT (varies by W-4 + bracket), state income tax (varies).

Total employer payroll tax burden typically runs 8–12% of gross wages depending on state. PEOs remit all of these on behalf of the co-employed workforce.

Common questions about Payroll tax

Related terms

• Federal Insurance Contributions Act (FICA) — The federal law that funds Social Security and Medicare through payroll taxes split between employer and employee.
• Federal Unemployment Tax Act (FUTA) — The federal employer-only payroll tax that funds the federal unemployment insurance program.
• State Unemployment Tax Act (SUTA) — State-level payroll tax that funds each state's unemployment insurance trust fund.
• Form W-2 (Wage and Tax Statement) — The annual tax document employers issue to each employee documenting wages paid and taxes withheld.
• Form W-4 (Employee's Withholding Certificate) — The IRS form employees complete to tell their employer how much federal income tax to withhold from each paycheck.

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This is one entry from our PEO glossary covering payroll, benefits, workers comp, HR compliance, and PEO mechanics. Browse all terms.