Payroll Tax is the tax withheld, charged or levied on the payroll of an employer. This includes all gross salaries, wages, perks or any other forms of remuneration paid to his or her employees. This tax is charged without taking into consideration the employee’s domicile, family status or any other individual circumstances. In short, payroll taxes are taxes required to be paid or withheld by an employer on behalf of his or her employees.
Categories of Payroll Tax:
Payroll Tax generally falls into two different categories:
- Deductions From An Employee’s Salary: This category of payroll tax is tax that an employer is required to withhold from his or her employee’s salary or wages. This tax is also known as withholding tax and can be used to cover advance payment of income tax or unemployment and disability insurances
- Taxes Paid By The Employer In Lieu of Employee’s Wages: This category of payroll tax is the tax paid by the employee from his own funds. This tax is directly related to employing a worker and can comprise of certain fixed charges or be proportionally linked to a worker’s salary. These charges paid by the employer generally cover the employer’s contribution towards social security, insurance programs etc
Objectives of Payroll Tax:
The Payroll Tax incentive scheme was introduced to meet the following objectives:
- To help in growth and enhancement of the business sector
- To facilitate the provision of rebate, which is paid by the employer for his or her employees
- To help prepare businesses during their formative years of functioning
- The aid businesses looking to shift base from one location to another
- To help businesses that are looking to expand their payroll and who are looking to undertake the liability of the payment of payroll taxes
However, the payroll tax incentive scheme does not apply to an employer or a group of employers who have been liable for the payroll taxes of the previous year.