Which of the following best defines payroll tax according to the material?

• A. Tax paid based on amount paid to an employee
• B. Tax paid on all business income (minus deductions)
• C. Tax paid on net business income
• D. Tax paid on gross receipts

Answer: (A)

Payroll taxes are taxes assessed on the compensation you pay to employees. They are typically collected through withholdings from employees’ wages, and often include an employer contribution as well. The defining point is that the tax amount is tied to how much you pay an employee, not to the business’s profits or to its total gross receipts. That’s why the option describing a tax based on the amount paid to an employee is the best fit. In contrast, taxes on all business income (minus deductions) or net business income refer to taxes on profits, and taxes on gross receipts apply to revenue, not to payroll.