A pay stub lists several federal deductions that are frequently treated as one item. They fund different programs, follow different rules and behave differently as pay rises.
They fund different things
Federal income tax withholding is an advance payment toward the annual income tax liability calculated on the tax return at year end.
Payroll taxes fund Social Security and Medicare specifically, and they are imposed under separate statutory provisions with their own rate structure.
The distinction matters because payroll tax is not reconciled on the return in the same way, and it is generally not reduced by deductions or credits.
The rate structures behave differently
Income tax uses graduated brackets, so successive portions of income are taxed at rising rates and the effective rate is lower than the top bracket reached.
The Social Security portion applies a flat rate up to an annual wage base that is indexed each year, after which no further Social Security tax is withheld.
The Medicare portion applies to all wages with no ceiling, and an additional amount applies above a threshold that is not indexed.
The employer pays a matching share
Employers remit a matching amount of Social Security and Medicare tax on each employee's wages, which does not appear as a deduction on the stub.
Economists generally treat some portion of the employer share as ultimately borne by workers through lower wages, though the legal obligation sits with the employer.
The self employed pay both halves through self employment tax and receive an offsetting deduction for the employer equivalent portion.
Withholding is an estimate, not a calculation
Income tax withholding is derived from the form the employee files with the employer, which describes filing status and other factors affecting the estimate.
Because it is an estimate made without knowledge of other income or deductions, it produces a refund or a balance due when the return is filed.
Payroll tax, by contrast, is calculated directly from wages and is generally correct as withheld, aside from wage base issues across multiple employers.
State systems add another layer
State income tax withholding follows separate state rules, and several states impose no income tax at all while others add local taxes on top.
Some states also withhold for disability or paid leave programs, which are state payroll taxes with their own rates, ceilings and benefit structures.
Rates, thresholds and wage bases are adjusted regularly by federal and state authorities, and specific figures for a given year should be confirmed with a tax professional.