If you are a newly employed person you must be having this question, what is the difference between income tax and payroll tax. To answer your question, here we have briefly described the main things that will clear your doubts and misconceptions regarding income tax and payroll tax. Here in this answer, we have tried to explain to you about the two types of taxes. To start with, both payroll taxes and income taxes are deducted from the income of an employee and the amount deducted depends upon the amount of money they generate as their work fee. However, there is a slight difference between both the transactions. The significant difference between income tax and the payroll tax is that the employee pays the income tax, but the payroll tax has a percentage of amounts that are paid by the employer. The payroll is deducted for various benefits including Social Security, Medicare, and unemployment insurance. However, the income tax is based on the annual income generated by an employee.
Now let us know what exactly Income tax and payroll tax are. So let us begin
As already mentioned, income tax is a tax that applies to the annual income generated by an employee. It looks quite similar to the payroll tax however the difference between the two is that the employee who creates the yearly revenue, has to pay it, instead of the company where he or she is working. So, it won’t be wrong to say that the Income Tax is solely the responsibility of an employee based on the income that they generate in a year. Income tax contributes to the federal, state, and local income taxes. One of the main difference between the payroll tax and income tax is that the income tax does not count on the particular flat rate however it is entirely based upon the federal custody table. The money that is obtained from the income tax contributes to the public services including the sectors like military, education, and transportation.
When it comes to the payroll taxes, it is the amount that is automatically taken from the salaries, and it contributes to the sectors including Social Security and Medicare contributions and unemployment insurance. For people who are self-employed, the payroll tax is applicable however it is not taken out automatically.
Hope the things mentioned above related to income tax and payroll tax will help you in finding the answer to your question.