Employers pay four main payroll taxes on your wages

Your employer pays Social Security tax, Medicare tax, federal unemployment tax, and state unemployment tax on the wages they pay you. These are separate from the payroll taxes deducted from your paycheck. Your employer must send these taxes to the IRS and your state on a set schedule — usually monthly or quarterly, depending on how much they owe.

The employer's share is a real cost to the business. It does not come from your paycheck; it comes from the employer's own funds. This is why the total payroll tax burden — what you pay plus what your employer pays — is higher than what you see deducted from your check.

Key Takeaways

  • Employers pay 6.2% Social Security tax and 1.45% Medicare tax on your wages, matching the amounts deducted from your paycheck.
  • Employers also pay federal unemployment tax (FUTA) at 6% on the first $7,000 of your annual wages, though most states offer a credit that lowers this to 0.6%.
  • State unemployment tax (SUTA) rates vary by state and by the employer's industry, ranging from less than 1% to over 5% of payroll.
  • Employers must report and pay these taxes on a schedule set by the IRS, typically monthly or quarterly depending on the total amount owed.
  • Self-employed people pay both the employer and employee share of Social Security and Medicare taxes, which is why their total rate is double.

Social Security and Medicare taxes: the employer match

For every dollar of Social Security tax withheld from your paycheck, your employer pays an equal amount. The rate is 6.2% of your gross wages, up to a wage cap that changes each year. In 2024, that cap is $168,600, meaning employers stop paying Social Security tax on wages above that amount for the year.

Medicare tax works the same way: your employer pays 1.45% of your gross wages, with no wage cap. If you earn over $200,000 (or $250,000 if married filing jointly), there is an additional 0.9% Medicare tax, and your employer pays half of that extra amount.

These employer taxes fund the Social Security and Medicare trust funds, just as the employee withholding does. The employer's contribution is not optional — it is a legal requirement for every employee on the payroll.

Federal unemployment tax (FUTA)

FUTA is a federal tax that funds unemployment benefits when workers lose their jobs. Employers pay this tax; employees do not have it deducted from their paychecks. The standard rate is 6% of the first $7,000 of each employee's annual wages, which means the maximum FUTA tax per employee per year is $420.

Most employers receive a credit against FUTA for the state unemployment taxes they pay. This credit is typically 5.4%, which brings the effective FUTA rate down to 0.6% for employers in good standing. New employers or those with high unemployment claims may not receive the full credit and will pay closer to the full 6%.

Employers report FUTA annually on Form 940, which is due by January 31 of the following year. Deposits are usually made quarterly, though the exact schedule depends on how much FUTA the employer owes.

State unemployment tax (SUTA)

SUTA is a state-run program that also funds unemployment benefits. Every state has its own rate structure, and rates vary widely — from less than 1% in some states to over 5% in others. The rate also depends on the employer's industry and their history of unemployment claims, a system called experience rating.

New employers typically pay a standard rate set by their state. As they build a track record, their rate may go up if they have many former employees drawing benefits, or down if they have few claims. This creates an incentive for employers to retain workers and avoid layoffs.

SUTA is calculated on a wage base that varies by state — some states tax only the first $7,000 of wages per employee per year, while others tax much higher amounts. Employers must register with their state's labor department and report wages quarterly or monthly, depending on state rules.

How employers report and pay these taxes

Employers use Form 941 to report Social Security, Medicare, and income tax withholding to the IRS each quarter. They use Form 940 to report FUTA annually. State unemployment taxes are reported on forms specific to each state, usually quarterly.

The payment schedule depends on how much tax the employer owes. Small employers may pay quarterly; larger employers must pay monthly or even more frequently. The IRS publishes a deposit schedule each year, and employers who miss a deposit important date face penalties and interest.

Employers can use the IRS's Electronic Federal Tax Payment System (EFTPS) to make deposits, or they can use a payroll service or accountant to handle the reporting and payment. Many small businesses use payroll software that calculates taxes automatically and reminds them when payments are due.

Why employer payroll taxes matter to you

Employer payroll taxes are part of your total compensation cost. When a company budgets for a salary, they account for these taxes as part of what the job actually costs them. In some cases, this affects how much they can offer you in wages, or how many people they can hire.

These taxes also fund the programs that protect you: Social Security, Medicare, and unemployment insurance. The employer contribution is as important to funding these programs as the employee contribution is. Without both, the programs would not have enough money to pay benefits.

Understanding that these taxes exist and how much they are can help you understand your true cost to an employer, especially if you are self-employed or negotiating a contract role where you see the full tax burden.

Self-employed people and payroll taxes

If you are self-employed, you pay both the employer and employee share of Social Security and Medicare taxes. This is called self-employment tax, and the rate is 15.3% (12.4% for Social Security, 2.9% for Medicare), compared to the 7.65% that an employee pays.

You do not pay FUTA or SUTA as a self-employed person, because those programs are designed for employers and employees. However, you may be able to deduct half of your self-employment tax as a business expense on your tax return, which reduces your taxable income.

Self-employed people file Schedule SE with their tax return to calculate self-employment tax, and they may need to make quarterly estimated tax payments to the IRS if they expect to owe more than a certain amount.

Frequently Asked Questions

Do employers pay payroll taxes on tips?

Employers pay Social Security and Medicare taxes on reported tips, but not on cash tips that are not reported to the employer. Employers do not pay FUTA or SUTA on tips. If you receive tips, you are required to report them to your employer, and your employer will withhold and pay taxes on that amount.

What happens if an employer does not pay payroll taxes?

The IRS can assess penalties, interest, and criminal charges against employers who fail to pay payroll taxes. Employees are not responsible for the employer's failure to pay, but the employer may face liens, wage garnishment, or loss of business licenses. If you suspect your employer is not paying taxes, you can report it to the IRS using Form 13909.

Do payroll taxes explore to all employees?

Most employees are subject to payroll taxes, but some groups are exempt or have different rules. For example, certain religious groups, some government employees, and nonresident aliens may have different tax treatment. Your employer should tell you if you fall into a special category.

Can an employer deduct payroll taxes from my paycheck?

No. Employers cannot deduct their own payroll taxes from your paycheck. The taxes deducted from your paycheck are your employee share of Social Security and Medicare taxes, plus federal and state income tax withholding. The employer's taxes are paid separately from the employer's funds.

How do payroll taxes change if I get a raise?

Both your payroll taxes and your employer's payroll taxes increase when you get a raise, because they are calculated as a percentage of your wages. Your employer's Social Security tax stops increasing once you hit the annual wage cap, but Medicare tax continues on all wages. Your employee withholding increases when ready on the higher amount.