What is payroll tax?

A payroll tax refers to a tax that an employer is required to either withhold or pay on behalf of its employees. This requirement can include both state and federal taxes, plus Medicare and Social Security taxes. Payroll taxes are withheld from an employee's wages.

Employees of a company must fill out a W-4 form to determine how much tax is withheld. Employers are also required to pay a matching portion of Social Security and Medicare taxes. In addition, an employer must pay both federal and state unemployment tax. There are some credits available to lower the amount an employer is required to pay in unemployment tax.