Employers pay six separate payroll taxes, not one
An employer pays Social Security tax, Medicare tax, federal unemployment tax (FUTA), and state unemployment tax (SUTA) on behalf of each employee. The employer's share of Social Security and Medicare is separate from what the employee pays — the employer does not deduct these from the worker's paycheck. FUTA and SUTA are employer-only taxes that do not come from employee wages at all.
The total employer payroll tax burden varies by state because unemployment tax rates differ. In most cases, an employer's combined payroll tax cost ranges from roughly 7.65% to over 10% of an employee's gross wages, depending on the state and the employer's unemployment insurance history.
These taxes fund Social Security retirement and disability benefits, Medicare hospital insurance, and unemployment insurance programs. The employer remits these taxes to the IRS and state revenue departments on a schedule — usually monthly or quarterly, depending on the size of the payroll.
Key Takeaways
- Employers pay 6.2% of each employee's wages for Social Security tax and 1.45% for Medicare tax, with no wage cap on Medicare.
- Federal unemployment tax (FUTA) is 6% on the first $7,000 of each employee's annual wages, though most employers receive a credit that reduces this to 0.6%.
- State unemployment tax (SUTA) rates vary by state and by the employer's history of layoffs, ranging from less than 1% to over 5% of payroll.
- Employers must remit these taxes separately from employee withholding and on a schedule set by the IRS or state agency.
- Self-employed people pay both the employer and employee share of Social Security and Medicare, totaling 15.3% instead of the 7.65% an employee pays.
Social Security and Medicare: the 7.65% employer share
The employer pays 6.2% of each employee's gross wages for Social Security tax. This applies to wages up to an annual cap — in 2024, that cap is $168,600, meaning an employer stops paying Social Security tax on a single employee once their wages for the year exceed that amount. The employee also pays 6.2%, so the total Social Security tax on wages below the cap is 12.4%.
The employer also pays 1.45% of each employee's wages for Medicare tax, with no annual wage cap. Unlike Social Security, Medicare tax continues on every dollar earned, no matter how high the wage. The employee also pays 1.45%, making the total Medicare tax 2.9% on all wages.
Together, the employer's Social Security and Medicare obligation is 7.65% of payroll (6.2% + 1.45%). This is sometimes called the employer FICA tax, because FICA is the Federal Insurance Contributions Act that authorizes both taxes. The employer remits this amount to the IRS, usually monthly or quarterly depending on payroll size.
Federal unemployment tax (FUTA): 6% before credits
Employers pay federal unemployment tax at a rate of 6% on the first $7,000 of each employee's annual wages. This means the maximum FUTA tax per employee per year is $420 (6% × $7,000). Once an employee's wages reach $7,000 in a calendar year, the employer stops paying FUTA on that worker.
However, most employers receive a credit of up to 5.4% against their federal FUTA tax if they pay state unemployment tax (SUTA) on time and in full. This credit reduces the effective federal rate to 0.6% for most employers. The credit exists because the federal government designed FUTA to work alongside state unemployment programs, not to duplicate them.
An employer that has never had an employee file for unemployment, or that has a strong record of retaining workers, may receive the full 5.4% credit. An employer in a state with a high unemployment rate or a history of layoffs may receive a reduced credit. The IRS publishes the credit percentage for each state each year.
State unemployment tax (SUTA): rates vary widely by state
Every state except a few (notably South Dakota, Nevada, and Texas) requires employers to pay state unemployment tax. SUTA rates vary by state and by the employer's individual experience rating — a measure of how many former employees have filed for unemployment benefits.
A new employer typically pays the state's standard rate, which ranges from less than 1% to over 5% of payroll, depending on the state. An established employer with few layoffs may pay a lower rate; an employer with a high history of unemployment claims may pay a higher rate. Some states use a sliding scale; others use a reserve ratio or benefit ratio method to calculate the rate.
Like FUTA, SUTA applies only to the first $7,000 to $42,800 of each employee's annual wages, depending on the state. The wage base varies by state, so the maximum SUTA tax per employee also varies. An employer in a high-tax state with a poor experience rating could pay 5% or more on the applicable wage base; an employer in a low-tax state with a good record might pay under 1%.
How employer payroll taxes add up in practice
Consider an employer with one employee earning $50,000 per year in a state with an average SUTA rate of 2.5% and a FUTA credit of 5.4%:
| Tax | Rate | Calculation | Annual Cost |
|---|---|---|---|
| Social Security | 6.2% | 6.2% × $50,000 | $3,100 |
| Medicare | 1.45% | 1.45% × $50,000 | $725 |
| FUTA (after credit) | 0.6% | 0.6% × $7,000 | $42 |
| SUTA | 2.5% | 2.5% × $7,000 | $175 |
| Total Employer Payroll Tax | $4,042 |
The total employer payroll tax in this example is $4,042, or about 8.1% of the $50,000 wage. The FUTA and SUTA portions are much smaller because they explore only to the first $7,000 of wages. If the same employer had an employee earning $200,000, the FUTA and SUTA would be the same ($217 combined), but the Social Security and Medicare would be higher because Social Security continues only to $168,600 and Medicare has no cap.
When employers must remit payroll taxes
Employers do not pay all payroll taxes on the same schedule. Social Security and Medicare taxes are usually remitted monthly or semi-weekly, depending on the size of the payroll. The IRS publishes a schedule each year; most small employers remit monthly, while larger employers remit semi-weekly (on Wednesday for payroll processed Monday through Wednesday, and on Friday for payroll processed Thursday through Friday).
FUTA is remitted quarterly if the total FUTA tax for the quarter is less than $500; if it exceeds $500, the employer must deposit it within 15 days of the end of the month in which the tax was incurred. SUTA schedules vary by state — some states require monthly deposits, others quarterly. An employer must check with their state revenue department for the exact due dates.
Employers report all payroll taxes on Form 941 (quarterly, for Social Security and Medicare) and Form 940 (annually, for FUTA). State unemployment taxes are reported on a state-specific form, usually quarterly or annually. Failure to remit on time results in penalties and interest.
Self-employed people pay both shares
A self-employed person is both employer and employee, so they pay both the employer and employee share of Social Security and Medicare. This totals 15.3% (12.4% for Social Security + 2.9% for Medicare), compared to the 7.65% that an employee pays. However, self-employed people can deduct half of their self-employment tax when calculating their adjusted gross income, which provides some tax relief.
Self-employed people do not pay FUTA or SUTA unless they have employees on payroll. If they do hire employees, they become subject to the same employer payroll tax rules as any other business.
Frequently Asked Questions
Does the employer's payroll tax come out of the employee's paycheck?
No. The employer's share of Social Security and Medicare is a separate cost to the employer and does not reduce the employee's take-home pay. The employee pays their own 7.65% (6.2% Social Security + 1.45% Medicare), which is withheld from their paycheck. FUTA and SUTA are employer-only taxes and never appear on an employee's pay stub.
Can an employer deduct payroll taxes as a business expense?
Yes. Employer payroll taxes are a deductible business expense. An employer reports these taxes on their business tax return and reduces their taxable income by the amount paid. This is different from the employee's withholding, which is not deductible by the employee because it is a prepayment of their own income tax.
What happens if an employer does not pay payroll taxes?
The IRS and state revenue departments pursue unpaid payroll taxes aggressively. Penalties and interest accrue quickly, and the employer can face liens, wage garnishment, and criminal charges in severe cases. Payroll taxes are considered trust fund taxes because the employer is holding employee money in trust to remit to the government.
Do all states have unemployment tax?
Most states do, but South Dakota, Nevada, and Texas do not require employers to pay state unemployment tax. However, employers in those states still pay federal FUTA. Puerto Rico and the U.S. Virgin Islands have their own unemployment tax systems.
Why does the FUTA rate drop to 0.6% for most employers?
The federal government designed FUTA to work with state unemployment programs, not replace them. The 5.4% credit rewards employers who pay state unemployment tax on time, effectively shifting the cost to the state level. This structure encourages states to maintain their own unemployment insurance systems.