What is the difference between payroll and income tax? Is payroll merely the weekly form of income tax or is it different since it raises money specifically for social security and medicare/medicaid.

Is the govt trying to screw over the poor by making us pay more in payroll taxes that are more regressive than income taxes?? I hate how they only have a sales tax for goods, which the poor (and everyone) need, and not for services, of which the rich buy a larger share proportionally.

Thanks!

ANSWER PERSON RESPONDS: Technically, a payroll tax is a tax paid by the employer based on its payroll. An example would be the employer portion of U.S. Social Security (Old Age and Survivor’s Insurance or OASI) or unemployment insurance (FUTA, for Federal Unemployment Tax Act). There may be all sorts of variations, such as limits on the level of wages on which the Social Security tax is applied. Colloquially, I’ve heard the term used for the entire Social Security program, including the employee portion, as you suggest. The income tax comes from the employee based on their income and, from a theoretical or policy (but perhaps not from a psychological) standpoint, is considered distinct. The money isn’t earmarked the same way as OASI or FUTA money. You can read about these topics in standard textbooks or dictionaries of economic or public policy terminology.

The topics of tax policy and tax incidence (e.g., who ultimately pays for the employer portion of OASI, or corporate income taxes, or property taxes — is it “passed on”?) has been studied extensively in academic literature (but probably not so much by politicians!). You’re correct that Social Security and sales taxes are generally considered more regressive than some other taxes, although ultimate incidence can be debated and you also have to consider the recipients of expenditures funded by a tax (which might make it less or even more regressive). I invite you to search our library’s catalog or databases that index articles or ask at our Reference Dept.

 

6 Responses to What is the difference: payroll and income tax

  1. Anonymous says:

    I keep hearing that one of the presidential candidates promises to cut taxes on 95% of taxpayers. When it is pointed out that only 60 per cent of taxpayers pay income tax. His response id that the payroll tax will be cut. I am confused on the difference between the two taxes as it pertains to that reference.

  2. Anonymous says:

    I am still confused about the difference between payroll and income taxes. If payroll taxes are SS and FUTA or dedicated taxes paid by both employer/employee and you are giving 95% of the employees a cut does that mean employers are also getting a cut? How do you cut these taxes and not underfund the programs? The 5% that doesn’t get taxes reduced are going get one heck of an increase.

  3. Anonymous says:

    It makes no sense. We all pay payroll taxes, medicare and SocSec. We all pay income tax, Federal income tax out of our weekly checks. At the end of the year, we file our taxes and most all of us get back the money plus more then we put into SocSec, medicare, and FICA combined.

    So what kind of twist on words is he talking here?

  4. Anonymous says:

    Did a freshman football player who is required to do time in study hall answer this question? Come on now — the person asking this obviously wants to know the real ramifications of the currently proposed “tax stimulus,” and phrased his/her question quite intelligently. You’ve told them absolutely nothing. This is a most inadequate response to this question. Duke University Library site should not be funded with tax-payer money based on this.

    Before you rant…study. Duke gets a great deal of money, as it should. This venue, however, should not be funded in terms of paying students getting their on-campus hours if the above is any indication of what is acceptable. The schoool did better in footall, historically; perhaps the money should go back to that. The added bonus is that it’s a profit center, and this forum is not.

    Look at the responses above. Three out of three still don’t get it.

    In your vernacular, Y’all done missed the piss pot.

  5. Anonymous says:

    if Income taxes were not in existance untill 1913, is this kind of why Joe the plumber, thinks income or payroll taxes are illegal and some form of socialism? Is this idea why he feels social security is a rip off? If so, why arent the republicans and Joe the plumber planning on overthrowing most of the gvt since income taxes of 1913 were imposed. should they go bck to where the immigrated from is People who think income taxes and Social security is socialism, and these peoplle cant vote down income taxes all together?

  6. Tax policy certainly brings out the worst in people, doesn’t it?