Understanding employer payroll taxes is essential for running a compliant business. Learn how federal withholding, Social Security, Medicare, FUTA, and state obligations are calculated, deposited, and reported.
When a business hires employees, compensation involves two distinct categories of payroll taxes: taxes withheld from employee wages (trust fund taxes) and taxes paid directly by the employer.
| Tax Category | Who Pays? | 2026 Statutory Rate | Wage Base Limit |
|---|---|---|---|
| Social Security (OASDI) | Split 50/50 (Employer & Employee) | 6.2% employer + 6.2% employee (12.4% total) | Capped at annual wage base ($176,100) |
| Medicare (Hospital Insurance) | Split 50/50 (Employer & Employee) | 1.45% employer + 1.45% employee (2.9% total) | No wage cap (applies to all wages) |
| Additional Medicare Tax | Employee only (Withheld by employer) | 0.9% on wages over $200,000 ($250,000 MFJ) | No employer matching contribution |
| Federal Unemployment (FUTA) | Employer 100% | 6.0% gross (effective 0.6% with maximum SUTA credit) | First $7,000 per employee annually |
| Federal Income Tax (FIT) | Employee only (Withheld based on Form W-4) | Graduated federal brackets (10% to 37%) | Calculated per pay period tables |
| State Unemployment (SUTA/SUI) | Employer 100% (in almost all states) | Experience-rated (typically 0.5% to 10%+) | Varies by state ($7,000 to $60,000+) |
The Federal Insurance Contributions Act (FICA) mandates a 6.2% tax on employee gross earnings, which the employer must match dollar-for-dollar with an additional 6.2%.
Once an employee's cumulative year-to-date wages cross the annual Social Security wage threshold, both withholdings and employer contributions stop for the remainder of that calendar year.
Calculate FICA Cap Effects →Both employer and employee contribute 1.45% of all wages toward Medicare with no annual limit.
When an individual employee earns more than $200,000 in a calendar year, employers must withhold an extra 0.9% Additional Medicare Tax from the excess wages. Employers do not match this 0.9% surcharge.
Read IRS Rule Details →FUTA provides funds for state unemployment agencies. The statutory rate is 6.0% on the first $7,000 of wages.
Employers who pay state unemployment taxes on time generally receive a credit of up to 5.4%, reducing their effective federal FUTA rate to just 0.6% ($42 maximum per eligible employee per year).
Official FUTA Publications →Filing payroll taxes accurately and on time protects business owners from severe personal liability penalties. The primary IRS returns include:
Employer's Quarterly Federal Tax Return. Reports federal income taxes withheld, employee and employer Social Security tax, and Medicare tax. Filed four times a year.
Due Dates: April 30, July 31, October 31, January 31.
Employer's Annual Federal Unemployment (FUTA) Tax Return. Calculates annual FUTA tax liability, verifies state unemployment tax credits, and reconciles deposits.
Due Date: January 31 of each year.
Wage and Tax Statements. Reports annual employee earnings and tax withholdings to employees, the Social Security Administration (SSA), and state revenue departments.
Due Date: January 31 for both employee copies and SSA transmittal.
Suppose an employee earns $2,500 in bi-weekly gross wages and has not yet reached the annual Social Security cap:
| Item | Employee Deduction | Employer Tax Liability | Total Remitted to IRS |
|---|---|---|---|
| Social Security (6.2%) | $155.00 | $155.00 | $310.00 |
| Medicare (1.45%) | $36.25 | $36.25 | $72.50 |
| Federal Income Tax (Sample W-4) | $245.00 | $0.00 | $245.00 |
| FUTA (0.6% on first $7,000) | $0.00 | $15.00 | $15.00 |
| Total for Pay Period | $436.25 (withheld from pay) | $206.25 (paid out of pocket) | $642.50 (EFTPS deposit) |
In this scenario, the employee receives net pay of $2,063.75, while the employer incurs a total labor cost of $2,706.25. Try our interactive calculator to run custom scenarios for your workforce.
Taxes withheld from employee paychecks (FIT and employee FICA) are legally considered trust funds held on behalf of the United States. Under IRC § 6672, officers and responsible individuals can be held personally liable for 100% of unpaid trust fund taxes, regardless of corporate bankruptcy.
Treating employees as independent contractors to avoid employer payroll taxes is heavily audited by the IRS and state labor departments. Misclassification can trigger retroactive FICA assessments, back wages, workers' comp penalties, and interest charges.
Employers must follow either monthly or semi-weekly deposit schedules based on their four-quarter lookback period. Deposits must be transmitted through the Electronic Federal Tax Payment System (EFTPS) on time to prevent Failure to Deposit penalties (up to 15%).
Modern full-service payroll platforms calculate withholdings, remit EFTPS tax deposits automatically, and prepare Form 941 filings with error-free tax guarantees.
Compare Top Small Business Payroll Tools →Deeper dives on the topics in this guide.
What a $60,000 salary really costs once employer taxes are added.
Read Article →How the IRS classifies workers — and what getting it wrong costs.
Read Article →The new thresholds and figures every employer should update.
Read Article →Employers and employees split FICA taxes equally: 6.2% for Social Security and 1.45% for Medicare each. In addition, employers pay 100% of federal unemployment tax (FUTA) and state unemployment insurance (SUTA), while employees pay federal and state income tax withholding deducted from their wages.
The annual Social Security wage base cap is updated annually by the Social Security Administration ($176,100). Once an employee reaches this cumulative threshold in a calendar year, neither employee nor employer pays further Social Security tax on earnings above it.
Tax deposits are made on either a monthly or semi-weekly schedule via EFTPS depending on your lookback liability. Quarterly returns (Form 941) are due by the end of the month following each calendar quarter (April 30, July 31, October 31, January 31).
The IRS Failure to Deposit penalty ranges from 2% (1-5 days late) to 10% (more than 15 days late), and rises to 15% if amounts remain unpaid after IRS demand notices. Using automated payroll software prevents late deposit penalties.