The employer payroll tax rate is 15.3 percent of each employee's wages

Employers pay 6.2 percent for Social Security and 2.9 percent for Medicare on every dollar an employee earns, up to a wage cap. That 9.1 percent combined is the employer's share. The employee pays the same percentages from their own paycheck, which is why the total system is sometimes called a "15.3 percent" tax — but the employer and employee each contribute half.

The Social Security portion (6.2 percent) only applies to wages up to an annual cap. For 2024, that cap is $168,600 per employee. Once an employee's wages hit that amount in a calendar year, the employer stops withholding and paying the Social Security tax on additional earnings. Medicare has no wage cap, so employers pay 2.9 percent on all wages, no matter how high.

Some employers in certain states also pay state unemployment insurance tax (SUTA), which varies by state and industry. This is separate from the federal payroll taxes and is not part of the 15.3 percent figure.

Key Takeaways

  • Employers pay 6.2 percent for Social Security and 2.9 percent for Medicare on employee wages, totaling 9.1 percent of payroll.
  • The Social Security portion stops once an employee reaches $168,600 in annual wages (the 2024 cap), but Medicare continues on all wages.
  • These employer taxes are separate from what employees pay — they are an additional cost to the business.
  • Most states also require employers to pay unemployment insurance tax, which has its own rate and wage base depending on the state and employer history.

How the wage cap affects what employers pay

The Social Security wage cap means an employer's tax bill for that tax does not grow indefinitely as an employee's salary increases. An employee earning $200,000 per year costs the employer the same Social Security tax as an employee earning $168,600 — because the tax stops explore after the cap is reached.

The cap changes each year. The Social Security Administration announces the new cap in October for the following year, based on average wage growth. This means employers need to track each employee's year-to-date wages and know when to stop withholding the 6.2 percent Social Security tax.

Medicare has no such limit. An employer pays 2.9 percent on the first dollar and the last dollar an employee earns in a year, regardless of total income.

Additional Medicare tax for high earners

There is a second Medicare tax that applies only to wages above a certain threshold. This Additional Medicare Tax is 0.9 percent and applies to employees earning over $200,000 per year (for single filers) or $250,000 (for married couples filing jointly). The employer withholds this from the employee's paycheck, but does not pay a matching employer share — only the employee pays it.

This is different from the standard 2.9 percent Medicare tax. The Additional Medicare Tax was created as part of the Affordable Care Act and applies only to high-income earners. Employers must track which employees cross these thresholds and withhold accordingly.

What employers actually pay versus what they withhold

It is important to separate what an employer pays out of its own pocket from what it withholds from employee paychecks. The employer's 9.1 percent (6.2 percent Social Security plus 2.9 percent Medicare) is a direct cost to the business. The employer sends this money to the IRS along with the employee's matching 7.65 percent.

Employers must deposit these taxes on a schedule set by the IRS — either monthly or twice per month, depending on the size of the payroll. The deposit important date is usually the 15th of the following month for monthly depositors. Missing a deposit important date results in penalties and interest.

Some employers use a payroll service or accountant to handle these calculations and deposits. The employer is still legally responsible for paying on time, even if a third party makes a mistake.

State and federal unemployment insurance taxes

In addition to Social Security and Medicare, employers pay Federal Unemployment Tax Act (FUTA) tax at a rate of 0.6 percent on the first $7,000 of each employee's annual wages. This funds unemployment benefits when workers lose their jobs.

Most states also require employers to pay State Unemployment Insurance (SUTA) tax, which varies widely. Some states charge as little as 0.5 percent; others charge 5 percent or more. The rate often depends on the employer's industry and history of layoffs. An employer in construction might pay a higher rate than one in a stable industry, because construction has higher unemployment claims.

SUTA is capped at a wage base that also varies by state — some states cap it at $7,000 per employee per year, while others use higher amounts. Employers must register with their state's unemployment insurance agency and report quarterly.

How payroll tax costs scale with the number of employees

The employer payroll tax is calculated per employee, so a business with 10 employees pays roughly 10 times what a business with one employee pays (assuming similar wages). A company with $1 million in annual payroll owes approximately $91,000 in employer Social Security and Medicare taxes alone, plus FUTA and SUTA on top of that.

This is why payroll tax is often one of the largest expenses for small businesses. Unlike income tax, which is based on profit, payroll tax is based on wages paid — so it is owed whether the business is profitable or not. A business that breaks even still owes full payroll taxes.

Some small businesses are structured as sole proprietorships or partnerships and pay self-employment tax instead, which is 15.3 percent on net business income (the employee and employer portions combined). This is higher than what an employee pays, but the business owner can deduct half of it.

Frequently Asked Questions

Do employers have to pay payroll tax on tips?

Yes. Employers must pay the employer portion of payroll tax on reported tips. If an employee reports tips to the employer, those tips are treated as wages for payroll tax purposes. The employer pays 9.1 percent on the tip income, just as it does on regular wages.

What happens if an employer does not pay payroll taxes?

The IRS can assess penalties, interest, and liens against the business. In severe cases, the IRS can pursue criminal charges against the owner or manager responsible. Unpaid payroll taxes are treated as a serious violation because the money withheld from employees belongs to the government, not the business.

Can an employer deduct payroll taxes as a business expense?

Yes. The employer's portion of payroll tax (the 9.1 percent the business pays) is deductible as a business expense on the company's tax return. This reduces the business's taxable income. The employee's portion, which the employer withholds, is not deductible by the employer because it is the employee's tax liability.

Do all types of workers count toward payroll tax?

No. Independent contractors do not trigger employer payroll taxes — they pay self-employment tax themselves. Employees on the payroll do. Some workers, like certain religious employees or family members in a family business, may have exemptions, but these are rare and require specific paperwork filed with the IRS.