Employer payroll taxes are a percentage of what you pay your employees, split between Social Security, Medicare, and unemployment insurance

As an employer, you pay 15.3% of each employee's wages in federal payroll taxes — 12.4% for Social Security and 2.9% for Medicare. This is separate from what your employees pay. You also pay state and federal unemployment insurance, which varies by state and your industry's history of claims. These are not optional deductions from paychecks; they are taxes you owe directly to the government based on your total payroll.

The Social Security and Medicare portions are called FICA taxes (Federal Insurance Contributions Act). Unlike income tax withholding, which depends on how employees fill out their W-4 forms, FICA taxes are a flat rate on all wages up to a cap. For 2024, Social Security tax stops after an employee earns $168,600 in a year, but Medicare tax continues on all wages with no limit.

If you have employees, you file these taxes quarterly on Form 941 (Employer's Quarterly Federal Tax Return) and pay them to the IRS. The amount you owe is calculated from your payroll records, not estimated. You must deposit the money on a schedule set by the IRS — usually every two weeks or monthly, depending on how much you owe.

Key Takeaways

  • You pay 12.4% for Social Security (capped at $168,600 per employee per year in 2024) and 2.9% for Medicare with no cap on all employee wages.
  • These 15.3% FICA taxes are separate from income tax withholding and are owed by the employer, not deducted from employee paychecks.
  • You also owe state and federal unemployment insurance, which ranges from roughly 0.6% to 6% of payroll depending on your state and industry.
  • Quarterly Form 941 filings and regular deposits to the IRS are required; the schedule depends on how much you owe each quarter.
  • Self-employed people pay both the employer and employee share (15.3% total for Social Security and Medicare), but can deduct half on their tax return.

How the Social Security and Medicare tax rates work

The 12.4% Social Security tax you pay applies to each employee's wages up to the annual cap. In 2024, that cap is $168,600. Once an employee reaches that amount in a calendar year, you stop withholding Social Security tax from their paychecks for the rest of the year. Medicare tax, at 2.9%, has no cap — you pay it on every dollar an employee earns, all year long.

There is also an additional 0.9% Medicare tax that applies to wages over $200,000 per employee per year (or $250,000 for married couples filing jointly). You are responsible for withholding this from the employee's paycheck, and you also pay a matching 0.9% on your side. This additional tax was added in 2013 and applies to all employers with employees earning above those thresholds.

The caps and rates change each year. The Social Security wage base (the cap) increases annually based on inflation. The IRS publishes the new rates and caps in October or November for the following year, so you should check the IRS website or your payroll software each January to confirm the current numbers.

Unemployment insurance taxes you owe by state

Federal unemployment insurance (FUTA) is a flat 6% of the first $7,000 in wages per employee per year. However, you receive a credit of up to 5.4% if you pay state unemployment insurance on time, which means your net federal rate is usually 0.6%. This credit is automatic — you do not have to claim it separately.

State unemployment insurance (SUTA) rates vary widely and are based on your industry and your company's history of layoffs and claims. A new employer in a low-risk industry might pay 1% to 2%, while a construction company or staffing firm with high turnover could pay 5% or more. Some states charge a flat rate; others use an experience rating system that adjusts your rate each year based on how many former employees filed for unemployment benefits.

You pay SUTA on a state-set schedule, usually quarterly or monthly. The wage base (the amount per employee on which you pay the tax) also varies by state — some states tax the first $7,000 per employee per year, while others tax up to $40,000 or more. Contact your state's labor department or unemployment insurance agency to find your rate and filing schedule.

When you deposit payroll taxes and file quarterly returns

The IRS requires you to deposit FICA and FUTA taxes on a schedule based on how much you owe. Most employers deposit monthly or semi-weekly. If you owe less than $2,500 in a quarter, you can pay it all when you file Form 941. If you owe more, you must deposit on the IRS schedule — usually every two weeks if you are a semi-weekly depositor, or by the 15th of the following month if you are a monthly depositor.

You file Form 941 (Employer's Quarterly Federal Tax Return) by the last day of the month after the quarter ends. For example, Q1 (January through March) is due April 30. Form 941 reports your total wages, the taxes you withheld from employee paychecks, and the employer taxes you owe. The form reconciles what you deposited during the quarter with what you actually owe.

At the end of the year, you file Form 940 (Employer's Annual Federal Unemployment Tax Return) to report FUTA taxes. This is due January 31 of the following year. You also send employees their W-2 forms by January 31, which shows their wages and the taxes withheld.

How payroll tax costs differ for self-employed people

If you are self-employed, you pay both the employer and employee share of Social Security and Medicare taxes. That is 15.3% total on your net self-employment income, rather than the 7.65% an employee pays. However, you can deduct half of your self-employment tax (the employer half) when you calculate your adjusted gross income on your tax return, which reduces your taxable income.

You report self-employment tax on Schedule SE (Self-Employment Tax) and pay it with your individual tax return or through quarterly estimated tax payments. If you expect to owe $1,000 or more in self-employment tax for the year, the IRS requires you to make quarterly estimated payments. The due dates are April 15, June 15, September 15, and January 15 of the following year.

Self-employed people do not pay FUTA or SUTA taxes. Those explore only to employers with employees on a payroll. If you hire employees later, you then become subject to unemployment insurance taxes on their wages.

Common mistakes employers make with payroll taxes

The most frequent error is misclassifying workers as independent contractors when they should be employees. If the IRS reclassifies a contractor as an employee, you owe back payroll taxes plus penalties and interest. The test is not what you call the person or what they prefer — it is whether you control how, when, and where they work. If you set their hours, provide tools or equipment, and direct the work, they are likely an employee.

Another common mistake is failing to deposit taxes on time. The IRS charges penalties of 2% to 15% depending on how late the deposit is. If you miss a deposit, contact the IRS when ready — penalties are lower if you deposit within a few days than if you wait until the quarterly filing important date.

Employers also sometimes forget to stop withholding Social Security tax once an employee hits the annual cap. This is straightforward to miss with multiple employees or if someone is hired mid-year. Most payroll software handles this automatically, but if you process payroll manually, you need to track each employee's year-to-date earnings and stop the 12.4% withholding once they reach $168,600 (in 2024).

How to calculate your total payroll tax liability

Start with your total gross payroll for the period — all wages before any deductions. Multiply by 12.4% for Social Security (up to the annual cap per employee), then multiply by 2.9% for Medicare. Add any additional 0.9% Medicare tax on wages over $200,000 per employee. Add 0.6% for FUTA (federal unemployment). Then add your state unemployment rate, which you can find from your state labor department.

For example, if you have one employee earning $3,000 in a pay period and you are in a state with a 2% unemployment rate, your payroll taxes would be: Social Security $372 (12.4% × $3,000), Medicare $87 (2.9% × $3,000), FUTA $18 (0.6% × $3,000), and SUTA $60 (2% × $3,000), for a total of $537 per pay period. This is in addition to any income tax you withhold based on the employee's W-4 form.

Most payroll software calculates this automatically and tells you how much to deposit. If you use a payroll service like ADP, Gusto, or Paychex, they handle the calculations, deposits, and filings for you. If you process payroll in-house, use the IRS Tax Withholding Estimator or your state's labor department resources to verify your calculations.

Frequently Asked Questions

Do I have to pay payroll taxes if I have only one employee?

Yes. Payroll taxes explore to any employer with employees, regardless of company size. Even a single employee triggers FICA, FUTA, and state unemployment insurance obligations. The only exception is if the person is a true independent contractor, not an employee.

What happens if I do not have enough money to pay payroll taxes?

You still owe the taxes. The IRS can place a lien on your business assets, garnish your bank account, or pursue other collection actions. If you cannot pay in full, contact the IRS to set up a payment plan. It is better to pay late with penalties than to not pay at all.

Can I deduct payroll taxes as a business expense?

Yes. The employer portion of payroll taxes (your 7.65% FICA share and FUTA) is deductible as a business expense. You cannot deduct the employee portion that you withhold from their paychecks — that is their tax liability, not yours.

Do I pay payroll taxes on tips my employees receive?

Yes. Employees must report tips to you, and you pay payroll taxes on reported tips as if they were wages. The employee also pays income tax and their share of FICA on tips. If tips are not reported, you are not liable for taxes on unreported amounts, but you should document the report.

What if an employee works part-time or seasonally?

Payroll taxes explore the same way — as a percentage of wages paid. There is no minimum hours threshold. If someone works one day a week or only during summer, you still owe payroll taxes on what you pay them. The Social Security cap still applies per calendar year, even if the employee works only part of the year.