People use "payroll tax" loosely to mean everything taken out of a paycheck. The IRS draws a sharper line. Some deductions are payroll taxes in the strict sense, owed because wages were paid, at fixed rates. One is income tax, which belongs to the employee's annual tax bill and is only collected through payroll. Knowing which is which explains why some lines on a pay stub never change and one moves every time something in your life does.
The short version
| Payroll taxes | Income tax | |
|---|---|---|
| What it is | A tax on wages paid | A tax on all of a person's income for the year |
| What it funds | Social Security, Medicare, unemployment insurance | General federal (and state) government spending |
| Rate | Flat percentages | Progressive brackets, after deductions and credits |
| Who pays | Employee and employer (FICA); employer only (FUTA, most state unemployment) | The employee |
| Settled when | Final when paid | On the annual tax return, as a refund or a balance due |
| Set by | Law, the same for every employee | The employee's Form W-4 and the IRS withholding tables |
| On the employee's pay stub | Social Security (OASDI), Medicare | Federal income tax (FIT, FITW), state income tax |
Payroll taxes in 2026
The IRS lists the employer's duties as withholding income tax, withholding and paying Social Security and Medicare, paying federal unemployment tax, and filing the returns. Three of those four are payroll taxes in the strict sense.
| Tax | Employee | Employer | Limit |
|---|---|---|---|
| Social Security (OASDI) | 6.2% | 6.2% | Wages up to $184,500 |
| Medicare | 1.45% | 1.45% | No limit |
| Additional Medicare | 0.9% on wages over $200,000 | None | Withheld from the employee only |
| Federal unemployment (FUTA) | None | 6% on the first $7,000, with credit up to 5.4% for state unemployment tax | First $7,000 per employee |
Social Security and Medicare together are often called FICA. On a pay stub only the employee's half appears as a deduction; the employer's matching half and FUTA are costs the employer pays on top of wages. States add their own: every state has unemployment insurance, usually paid by the employer, and a few also take disability or paid family leave contributions from employees.
Income tax withholding
Federal income tax is owed on the employee's total income for the year, after deductions and credits, at rates that rise in bands. The employer can't know all of that, so it withholds an estimate each payday using the employee's Form W-4 and the methods in IRS Publication 15-T. Whatever is withheld is credited against the employee's final bill when they file. Too much comes back as a refund; too little is paid with the return.
That's why the federal income tax line moves when an employee files a new W-4, gets a raise, picks up overtime or a bonus, while the Social Security and Medicare lines simply follow gross pay. States with an income tax work the same way through their own withholding forms; states without one have no state income tax line at all.
A worked example
Take a $1,000 weekly paycheck in 2026, with no pre-tax deductions. The payroll tax lines are fixed arithmetic:
| Line | Employee pays | Employer pays |
|---|---|---|
| Social Security, 6.2% | $62.00 | $62.00 |
| Medicare, 1.45% | $14.50 | $14.50 |
| FUTA (while under $7,000 for the year, at the net 0.6% after full credit) | $0 | $6.00 |
| Federal income tax | Depends on the employee's W-4 and Publication 15-T | $0 |
The employee's FICA comes to $76.50 whatever their situation. The income tax line could be anything from zero to well over $100 for the same $1,000, depending on filing status, other jobs, dependents and the adjustments on their W-4. The FUTA figure assumes the employer qualifies for the full 5.4% credit; employers in a credit-reduction state pay more.
Common mix-ups
- "I got all my payroll tax back." A refund returns overwithheld income tax. Social Security and Medicare are not refunded, except when someone with two employers pays Social Security on more than the wage base, which they claim on their return.
- "No tax on overtime means no tax on my overtime pay." The 2025 law lets eligible workers deduct some qualified overtime on their income tax return through 2028; Social Security and Medicare still apply to that pay.
- "My state has no income tax, so there's no payroll tax." State unemployment insurance still applies, and federal payroll taxes apply everywhere.
- "The employer's share is on my stub." It usually isn't. A pay stub shows what came out of the employee's pay, not the employer's matching tax.
Seeing both on a pay stub with PayDocs
The free PayDocs paycheck calculator works out federal income tax withholding from Form W-4 answers using Publication 15-T, Social Security and Medicare for 2026, and state income tax in the states it covers. You can carry the result into the pay stub generator, which shows each line separately with year-to-date totals. PayDocs doesn't file returns or pay any tax.
Creating and previewing a pay stub is free; the finished PDF is $4.99 once checkout opens, or less per document in packs of 4 or 12.
Questions
What is the difference between payroll tax and income tax?
Payroll taxes are flat-rate taxes on wages that fund Social Security, Medicare and unemployment insurance. Income tax is a tax on a person's total yearly income; the amount withheld from pay is a prepayment settled on the tax return.
Is federal income tax withholding a payroll tax?
It is collected through payroll, so people often call it one, but it is the employee's income tax. Employers withhold it and send it to the IRS along with Social Security and Medicare.
What are the payroll tax rates for 2026?
Social Security is 6.2% each for employee and employer on wages up to $184,500, Medicare 1.45% each with no limit, plus 0.9% Additional Medicare on an employee's wages over $200,000. FUTA is 6% on the first $7,000, with credit up to 5.4%.
Do employers pay income tax on employees' wages?
No. Employers withhold the employee's income tax and pay their own share of Social Security and Medicare, plus FUTA and state unemployment tax.
Sources
- IRS, Understanding employment taxes
- IRS, Topic no. 751, Social Security and Medicare withholding rates
- IRS, Publication 15 (2026), Employer's Tax Guide
- IRS, Publication 15-T (2026), Federal Income Tax Withholding Methods
Sources checked October 4, 2026. This article explains how pay documents work; it is not tax or legal advice.
