Income Tax vs Payroll Tax

Updated on January 4, 2024
Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Difference Between Income Tax and Payroll Tax

Income tax is the tax imposed by government authorities on the net income earned by individuals or business entities which is progressive where the person earning higher income has to pay income tax at a higher rate of interest and vice versa, whereas, Payroll tax refers to the tax which includes social security tax, taxes for medical care and unemployment taxes, etc. where both employer and an employee contribute such tax.

Employers are responsible for holding part of the wages given to the employees as employment taxes. Employment taxes are deducted from the employee’s gross wagesGross WagesGross wages are the amount of remuneration paid to employees before any deductions like taxes, including social security and Medicare, life insurance, pension contributions, bonuses.read more in two types.

Income-Tax-vs-Payroll-Tax

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Income Tax vs. Payroll Tax Infographics

Let’s see the top differences between Income Tax vs. Payroll Tax.

Income-Tax-vs-Payroll-Tax

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Income vs. Payroll Tax Video Explanation

Key Differences

Income Tax vs. Payroll Tax Comparative Table

Basis for ComparisonIncome TaxPayroll Tax
ContributorsOnly employee.Both employer and employee.
Consists of Federal, state, and local tax;Medicare tax, unemployment tax, and social security tax;
Source Incomes from various sources are taken into consideration over the year.Income from wages can only be considered.
Nature of taxProgressive Tax.Regressive Tax.
PurposeMore for contribution to the government, society at large;More for employee’s future benefits;

Final Thoughts 

We know that both taxes have their differences, but both tax amounts are withheld by the employers while giving the wages. Both taxes are being made to pay for different reasons, and we need to know how much taxes we pay and how they are split. Understanding the differences will help us figure out each type of tax and how they work.

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