Difference Between Pay Tax And Payroll Tax

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Both payroll taxes and income taxes are based on an employee’s wage or salary. The main difference between each tax is who end up paying the tax. Employers pay most of an employee’s payroll taxes while just the employee pays the income taxes. Both taxes end up coming from employee’s salary. Typically in America, employees end up paying more payroll taxes than they do income taxes. This paper is going to look at the differences between payroll taxes and income taxes and will also explain what “wage shifting” is and when it occurs.
Payroll taxes are taxes that employers and employees pay to the federal government from an employee’s salary. The amount of payroll taxes paid comes from a percentage of the salary that employers pay to their staff. …show more content…

At the lowest level of employment such as minimum wage employers must pay a set payroll tax per employee they hire. In order off set this burden on employer, employers attempt to reduce the salaries they pay to their employees. Since employers cannot reduce the amount they pay to employees at the minimum wage level, they end up reducing the number of employees they hire. This is what is known as “wage shifting”. Basically payroll taxes at this level cannot be shifted to minimum wage employees because their wages cannot be lowed to a level that offsets the burden of the tax. This causes a problem for low wage workers in attempting find work because getting hired causes a burden on employers, which they are not willing to pay.
In conclusion, the difference between payroll tax and income tax is the person that ends up paying that tax. Employers pay payroll taxes, while the employee pays income tax. Wage shifting occurs when employers attempt to shift the burden of the payroll tax on to employees. Yet at the minimum wage level employers cannot lower wages any further and as a result they end up hiring less

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