Employers pay 15.3% of each employee's wages in payroll taxes

Your employer pays a matching share of the payroll taxes that come out of your paycheck. While you see 7.65% withheld from your wages, your employer sends in another 7.65% on your behalf — money that never appears on your pay stub because it comes from the company's budget, not yours. This 15.3% total is split between Social Security and Medicare, the two largest federal payroll tax programs.

The employer's share is a real cost to the business. It is not optional, and it is not deducted from your salary. When a company hires someone at $50,000 per year, the actual cost to the employer is roughly $53,825 once payroll taxes are added in. This is why employers care about payroll tax rates — it directly affects their bottom line.

Key Takeaways

  • Employers pay 6.2% for Social Security and 1.45% for Medicare on each employee's wages, matching what employees pay.
  • These employer contributions are capped for Social Security but not for Medicare, so the tax burden grows as wages rise.
  • Self-employed people pay both the employee and employer share themselves, totaling 15.3% on net business income.
  • Some states and cities add their own payroll taxes on top of federal rates, increasing the employer's total cost.
  • Employers must remit these taxes to the IRS on a schedule set by the size of their payroll, usually monthly or semi-weekly.

How the 15.3% breaks down between Social Security and Medicare

The employer's 7.65% share divides into two parts: 6.2% for Social Security and 1.45% for Medicare. Social Security is the retirement and disability insurance program; Medicare is the health insurance program for people 65 and older. Both are federal programs, and both require matching contributions from employers.

The Social Security portion has a wage cap. In 2024, employers only pay the 6.2% Social Security tax on the first $168,600 of each employee's annual wages. Once an employee earns more than that, the employer stops paying Social Security tax on the additional income. Medicare has no cap — employers pay 1.45% on all wages, no matter how high they go. This is why high-earning employees see their payroll tax burden shift more toward Medicare as their income rises.

Additional Medicare tax for high-income employees

There is a second Medicare tax that kicks in at higher income levels. Employers must pay an additional 0.9% Medicare tax on wages above $200,000 per year for single employees, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately. This is on top of the standard 1.45% Medicare tax.

Unlike the standard Medicare tax, the additional Medicare tax does not have a matching employee contribution in the traditional sense — employees pay it directly through withholding on their paychecks. The employer still calculates and withholds it, but the employer does not pay a matching share of this additional tax. This tax was introduced in 2013 as part of the Affordable Care Act.

State and local payroll taxes add to the employer's burden

Federal payroll taxes are only part of what employers pay. Most states impose their own payroll taxes, and some cities do as well. These vary widely by location. Some states have no income tax at all, while others tax wages at rates between 1% and 13%. A few states also have separate employer payroll taxes that are not tied to income tax.

For example, New York State taxes employer payroll at rates that depend on the size of the payroll and the industry. California has a state income tax that applies to both employees and employers. New Jersey has a temporary employer payroll tax that was set to expire but has been extended. If your employer operates in multiple states, they pay the payroll tax rates of each state where they have employees. This is why a national company's total payroll tax cost varies by location.

How often employers must send payroll taxes to the IRS

Employers do not pay payroll taxes once a year. The IRS requires deposits on a schedule based on the size of the payroll. Most small employers deposit payroll taxes monthly — they add up the taxes withheld and owed for the month and send them in by the 15th of the following month. Larger employers must deposit semi-weekly, meaning they deposit taxes twice per week based on payroll dates.

The IRS uses a lookback period to determine which schedule applies to each employer. If your employer's total payroll tax liability in a lookback period (usually the prior four quarters) was $50,000 or less, they use the monthly schedule. Above that, they move to semi-weekly deposits. Employers who miss deposit important date face penalties, so payroll tax timing is tracked carefully by accounting departments.

Self-employed people pay both the employee and employer share

If you are self-employed, you do not have an employer to pay the employer's share of payroll taxes. You pay both sides yourself. This means you owe 15.3% of your net business income to Social Security and Medicare combined — 12.4% for Social Security (up to the wage cap) and 2.9% for Medicare.

Self-employed people report this as self-employment tax on Schedule SE of their tax return. The good news is that you can deduct half of your self-employment tax as a business expense, which lowers your taxable income. You also pay self-employment tax only on net business income (revenue minus business expenses), not on gross revenue. If your business loses money in a year, you may owe no self-employment tax at all.

Why employers care about payroll tax rates and policy changes

Payroll taxes are one of the largest operating costs for any business with employees. A small business with ten employees earning $40,000 each pays roughly $61,200 per year in federal payroll taxes alone, plus state and local taxes on top of that. When payroll tax rates change or new taxes are introduced, it directly affects hiring decisions and business budgets.

This is why payroll tax policy is a frequent topic in business advocacy and political debate. Some proposals would raise the Social Security wage cap, which would increase taxes on high-earning employees and their employers. Others focus on reducing employer payroll taxes to encourage hiring. Understanding what employers pay helps explain why these policy discussions matter to both businesses and workers.

Frequently Asked Questions

Does the employer's payroll tax come out of my salary?

No. The employer's share of payroll taxes is a separate cost paid by the company. Your paycheck shows only your employee share (7.65% federal). The employer's 7.65% comes from the company's budget and does not reduce your pay. However, it does affect how much the company can afford to pay you in the first place.

What happens if an employer does not pay payroll taxes?

The IRS treats unpaid payroll taxes as a serious violation. Employers face penalties, interest, and potential criminal charges. The IRS can also hold business owners personally liable for unpaid payroll taxes, even if the business is a corporation. This is called the "responsible person" penalty and can result in personal liability for officers and managers.

Do nonprofit organizations pay payroll taxes?

Yes. Nonprofit organizations that have employees must pay the same federal payroll taxes as for-profit businesses. The nonprofit status exempts them from income tax, but not from payroll taxes. Employees of nonprofits still have Social Security and Medicare taxes withheld from their paychecks, and the nonprofit still pays the employer share.

Can an employer deduct payroll taxes as a business expense?

Yes. Employers deduct payroll taxes (both the employee withholding they remit and their own share) as a business expense. This reduces the company's taxable income. The employee's portion of payroll taxes is not deductible by the employee, but the employer's portion is fully deductible by the business.

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

Payroll taxes (Social Security and Medicare) fund specific federal programs and have set rates and wage caps. Income tax withholding is separate — it is money withheld from your paycheck to cover federal income taxes owed. Employers must handle both, but they are calculated differently and go to different places. Payroll taxes are mandatory; income tax withholding depends on the W-4 form you file.