Employers pay 15.3% of each employee's wages in federal payroll taxes, split between Social Security and Medicare

An employer's payroll tax bill has two parts: Social Security tax at 6.2% and Medicare tax at 1.45% of each employee's gross wages. These are federal taxes only. The employer matches the amount the employee pays — so if an employee pays 6.2% into Social Security, the employer also pays 6.2% on that same wage. There is no cap on Medicare tax, but Social Security tax stops once an employee reaches the annual wage cap, which changes each year.

On top of federal payroll taxes, employers also pay state unemployment insurance (SUTA) and federal unemployment insurance (FUTA). SUTA rates vary by state and employer history; FUTA is a flat 0.6% on the first $7,000 of each employee's annual wages. Some states also require employers to pay into state disability insurance or paid family leave programs, which adds another layer of cost that differs by location.

Key Takeaways

  • Employers pay 6.2% for Social Security and 1.45% for Medicare on each employee's wages, matching what the employee pays.
  • The Social Security wage cap changes annually; once an employee earns that amount in a year, the employer stops paying the 6.2% Social Security portion on additional wages.
  • Federal unemployment tax (FUTA) is 0.6% on the first $7,000 of each employee's annual wages, and state unemployment tax (SUTA) varies by state and employer experience rating.
  • Some states impose additional payroll taxes for disability insurance, paid family leave, or other programs, which employers must pay on top of federal taxes.
  • Employers must withhold and remit these taxes on a schedule set by the IRS, typically monthly or semi-weekly depending on the size of the payroll.

How the Social Security and Medicare portions work

The Social Security tax rate of 6.2% applies to wages up to an annual cap. In 2024, that cap is $168,600, meaning an employer stops paying the 6.2% once an employee's cumulative wages for the year hit that threshold. The Medicare tax of 1.45% has no wage cap — it applies to all wages, no matter how high. Together, these two taxes make up the 15.3% that employers and employees each contribute to the Social Security and Medicare trust funds.

An employer calculates these taxes on the employee's gross pay before any deductions. If an employee earns $2,000 per pay period, the employer owes $124 in Social Security tax (6.2% of $2,000) and $29 in Medicare tax (1.45% of $2,000) for that period, in addition to withholding the same amounts from the employee's paycheck.

There is also an Additional Medicare Tax of 0.9% that applies to high earners. Employers must withhold this from employees whose wages exceed $200,000 in a calendar year (the threshold is $250,000 for married couples filing jointly, but employers withhold based on individual wages). The employer does not pay a matching portion of the Additional Medicare Tax — only the employee does.

Unemployment insurance taxes: federal and state

Federal Unemployment Tax (FUTA) is a flat 0.6% on the first $7,000 of each employee's annual wages. Once an employee reaches $7,000 in wages for the year, the employer stops paying FUTA on that employee. This means the maximum FUTA tax per employee per year is $42. Employers report and pay FUTA annually on Form 940, though they may need to make deposits during the year if their liability exceeds a certain threshold.

State Unemployment Tax (SUTA) varies significantly by state. Most states charge between 0.5% and 5.4% of wages, though the rate depends on the employer's industry and history of layoffs. An employer in a stable industry with few former employees drawing benefits pays a lower rate than one in a volatile industry or with a history of layoffs. Some states have a wage cap (meaning SUTA applies only to the first $7,000 to $40,000 of each employee's annual wages, depending on the state), while others have no cap.

Employers must register with their state's unemployment insurance agency and remit SUTA payments on a schedule set by that state — usually quarterly. The state provides the employer with a rate notice each year showing the exact percentage they owe.

State-specific payroll taxes beyond unemployment

Several states require employers to pay into additional programs beyond unemployment insurance. California, New Jersey, New York, and Rhode Island require employers to contribute to state disability insurance or paid family leave programs. These rates are typically between 0.1% and 1% of wages, though some states split the cost with employees.

A few states also impose payroll taxes for other purposes. For example, some states have a workforce development tax or a job training tax. The specifics depend entirely on where the business operates and where the employee works. An employer with employees in multiple states must track and pay the payroll taxes for each state separately.

Employers should check with their state's department of revenue or labor to confirm all payroll tax obligations in their state. Many states provide rate tables and calculators on their websites.

How employers calculate and remit payroll taxes

Employers calculate payroll taxes on each pay period's gross wages. The calculation is straightforward: multiply the wage by the tax rate. For federal taxes, the employer withholds the employee's portion from the paycheck and then adds the employer's matching portion, remitting both together to the IRS.

The IRS sets deposit schedules based on the size of the employer's payroll. Most employers with a payroll under $50,000 per quarter deposit monthly, while larger employers deposit semi-weekly (twice per week). Deposits are made through the Electronic Federal Tax Payment System (EFTPS) or through a payroll service provider. Employers also file Form 941 quarterly to report wages paid and taxes withheld.

At the end of the year, employers file Form 940 (for FUTA) and provide employees with Form W-2 statements showing wages and taxes withheld. State unemployment taxes are reported on state-specific forms, usually quarterly or annually depending on the state.

What happens if an employer does not pay payroll taxes

Payroll taxes are a legal obligation, and the IRS treats unpaid payroll taxes seriously. If an employer fails to deposit or remit payroll taxes, the IRS can assess penalties, interest, and liens against the business. The employer is also personally liable for the employee portion of payroll taxes — this is called the responsible person penalty, and it can explore to owners, managers, or anyone with authority over payroll.

Employees are not harmed by an employer's failure to pay payroll taxes — the taxes are still credited to their Social Security and Medicare accounts based on the W-2 the employer files. However, the employer faces serious consequences, including criminal prosecution in cases of willful evasion.

Payroll tax costs for different business sizes

The total payroll tax burden depends on the size of the payroll and the state. A small business with one employee earning $40,000 per year pays roughly $3,060 in federal payroll taxes (15.3% of $40,000) plus state unemployment and any state-specific taxes. A larger business with 50 employees earning an average of $50,000 each pays approximately $382,500 in federal payroll taxes annually, plus state and local taxes.

Some employers use payroll service providers like ADP, Gusto, or Paychex to calculate and remit taxes automatically. These services charge a fee but reduce the risk of errors and missed important date. Other employers use accounting software or handle payroll in-house with a dedicated staff member.

Frequently Asked Questions

Does the employer's payroll tax rate change if an employee works part-time?

No. The payroll tax rate is the same whether an employee works full-time or part-time. The employer pays 15.3% in federal payroll taxes on all wages, regardless of hours. However, part-time employees may not reach the Social Security wage cap in a year, so the employer continues paying 6.2% on all their wages throughout the year.

What is the difference between payroll taxes and income tax withholding?

Payroll taxes (Social Security and Medicare) are separate from federal income tax withholding. The employer withholds income tax based on the employee's W-4 form and remits it to the IRS, but the employer does not pay a matching portion of income tax. Payroll taxes are employer-employee shared costs; income tax withholding is purely an employee obligation that the employer collects and forwards.

Do employers pay payroll taxes on bonuses and commissions?

Yes. Bonuses, commissions, and any other compensation count as wages for payroll tax purposes. The employer calculates and pays payroll taxes on these amounts the same way as regular wages, subject to the Social Security wage cap.

Can an employer deduct payroll taxes from their business taxes?

Yes. The employer's portion of payroll taxes is a deductible business expense. The employer can deduct the 6.2% Social Security, 1.45% Medicare, and 0.6% FUTA taxes paid on employee wages when calculating business income tax.

What happens to payroll taxes if an employee is on unpaid leave?

Payroll taxes are owed only on wages actually paid. If an employee is on unpaid leave and receives no pay, the employer owes no payroll taxes for that period. If the employee receives paid leave (vacation, sick time), the employer owes payroll taxes on that paid amount.