Employers pay two main payroll taxes: the employer portion of Social Security and Medicare, plus federal and state unemployment insurance

When you work for a company, your employer withholds taxes from your paycheck — but employers also pay their own separate payroll taxes. These are not deducted from your wages. Instead, the employer sends them directly to the IRS and state tax agencies. The employer's share of Social Security and Medicare is 7.65 percent of your gross pay. On top of that, employers pay federal unemployment insurance (FUTA) and state unemployment insurance (SUTA), which fund jobless benefits when workers are laid off or let go.

The key difference: you see the employee portion of Social Security and Medicare taken from your paycheck. Your employer's portion is a separate cost to the business, paid from company funds. Both amounts go to the same government accounts, but they are calculated and reported separately on tax forms.

Key Takeaways

  • Employers pay 6.2 percent for Social Security and 1.45 percent for Medicare on each employee's wages, totaling 7.65 percent.
  • Federal unemployment insurance (FUTA) is 6 percent of the first $7,000 of each employee's annual wages, though most employers receive a credit that reduces this to 0.6 percent.
  • State unemployment insurance (SUTA) rates vary by state and by the employer's industry and layoff history, typically ranging from 0.5 to 5.4 percent.
  • Employers report these taxes quarterly on Form 941 (federal income and payroll taxes) and Form 940 (unemployment tax), plus state-specific forms.
  • Self-employed people pay both the employee and employer portions of Social Security and Medicare, totaling 15.3 percent, on Schedule SE.

Social Security and Medicare: The 7.65 Percent Employer Share

Your employer pays 6.2 percent of your wages to Social Security and 1.45 percent to Medicare. These are matched to the amounts withheld from your paycheck. If you earn $50,000 a year, your employer sends $3,100 to Social Security and $725 to Medicare on your behalf, in addition to what was taken from your pay.

There is no wage cap on Medicare — the 1.45 percent applies to all earnings. Social Security, however, has a wage base limit. In 2024, the limit is $168,600, meaning employers stop paying the 6.2 percent Social Security tax once an employee's wages exceed that amount in a calendar year. This limit changes annually. If you change jobs mid-year, each employer calculates Social Security tax based on what you earned at that job alone, so you could end up paying more in total if your combined earnings exceed the limit.

High-income employees also face an additional 0.9 percent Medicare tax on wages over $200,000 (single filers) or $250,000 (married filing jointly). Employers must withhold this from the employee's paycheck, but employers do not pay a matching share of this additional tax — it is an employee-only tax.

Federal Unemployment Insurance (FUTA): How the 0.6 Percent Rate Works

Employers pay federal unemployment insurance to fund the unemployment benefit system. The FUTA tax rate is 6 percent of the first $7,000 of each employee's annual wages. That sounds like $420 per employee per year, but in practice most employers pay much less.

The reason is a federal credit. If an employer pays state unemployment insurance (SUTA) on time, the federal government credits 5.4 percent of the FUTA tax owed. This brings the effective federal rate down to 0.6 percent for most employers. So on a $7,000 wage base, the typical employer pays $42 per employee per year in federal unemployment tax. States with unpaid SUTA debt or employers with poor unemployment claims records may not receive the full credit and will owe closer to the full 6 percent.

The $7,000 wage base resets each calendar year. An employer calculates FUTA on the first $7,000 each employee earns between January 1 and December 31. Once an employee reaches $7,000 in wages, no more FUTA is owed on that employee for that year, even if they earn $100,000 total.

State Unemployment Insurance (SUTA): Rates That Vary Widely

Every state runs its own unemployment insurance program, and employers must pay state unemployment tax (SUTA) on employee wages. The rate varies significantly by state and by employer. Most states tax the first $7,000 to $15,000 of each employee's annual wages, though some states have higher wage bases.

SUTA rates typically range from 0.5 percent to 5.4 percent, but the exact rate depends on two things: the state's tax schedule and the employer's experience rating. The experience rating is a record of how many former employees have filed for unemployment benefits. Employers with few claims pay lower rates; employers with many claims pay higher rates. A new business usually starts at the state's standard rate and moves up or down based on claims history over time.

For example, a new restaurant in California might pay 3.4 percent on the first $7,000 of each employee's wages. A restaurant with a long history of layoffs might pay 5.4 percent. The same business in another state might pay 1 percent or 4 percent depending on that state's structure. You can find your state's current SUTA rates on your state's labor department website.

How Employers Report and Pay These Taxes

Employers report federal income tax withholding and payroll taxes on Form 941, the Employer's Quarterly Federal Tax Return. This form is filed four times a year — once for each quarter — and shows how much was withheld from employees' paychecks and how much the employer owes in matching taxes. The IRS uses Form 941 to track both the employee and employer portions of Social Security and Medicare.

Federal unemployment tax (FUTA) is reported separately on Form 940, the Employer's Annual Federal Unemployment Tax Return, filed once a year by January 31. This form calculates the 0.6 percent (or higher) tax owed on the first $7,000 of each employee's wages.

State unemployment tax is reported on a state-specific form, usually filed quarterly or annually depending on the state. Some states combine income tax and unemployment tax reporting on a single form. Employers must also maintain payroll records showing gross wages, tax withholdings, and employer tax payments for each employee, typically for at least three to four years.

Most employers use payroll software or a payroll service to calculate and file these taxes automatically. The software tracks wage bases, applies state and federal rates, and generates the required forms. Employers who process payroll in-house must understand these rules to avoid underpaying or overpaying.

Self-Employed People Pay Both Portions

If you are self-employed, you are both the employee and the employer. You must pay the full 15.3 percent for Social Security and Medicare — 12.4 percent for Social Security (on earnings up to the annual wage base) and 2.9 percent for Medicare. You report this on Schedule SE, Self-Employment Tax, which is filed with your Form 1040 individual income tax return.

Self-employed people do not pay FUTA or SUTA. Those taxes explore only to employees of a business. However, self-employed people can deduct half of their self-employment tax as an adjustment to income on their tax return, which reduces their taxable income slightly.

What Happens If an Employer Fails to Pay

Employers who do not pay payroll taxes on time face penalties and interest. The IRS charges a failure-to-pay penalty of 0.5 percent per month on unpaid taxes, plus interest that compounds daily. If an employer fails to deposit taxes for multiple quarters, the penalties accumulate quickly and can exceed the original tax owed.

In severe cases, the IRS can place a lien on the business's assets or pursue criminal charges against the business owner for willfully evading payroll taxes. Employees are not responsible for unpaid employer taxes, but they may not receive Social Security or Medicare credit for wages if the employer never reported them. If you suspect your employer is not paying payroll taxes, you can report it to the IRS using Form 13909, the Whistleblower Form.

Frequently Asked Questions

Do employers pay payroll taxes on tips?

Employers pay Social Security and Medicare taxes on reported tips, but not on tips that are not reported to the employer. Employees must report tips to their employer, and the employer includes those tips in the wage calculation for payroll taxes. Federal and state unemployment taxes do not explore to tips in most states.

What if an employee works part-time or is paid hourly?

Payroll taxes explore the same way regardless of whether an employee is full-time, part-time, hourly, or salaried. The employer calculates the tax as a percentage of gross wages paid. A part-time employee earning $10,000 a year triggers the same 7.65 percent Social Security and Medicare tax as a full-time employee earning $50,000.

Are payroll taxes the same in every state?

Federal Social Security and Medicare taxes are the same nationwide, but state unemployment insurance rates vary widely. Some states also have state income tax withholding, which is separate from payroll taxes. A few states have no state income tax. Check your state's labor department website for the current SUTA rate and wage base.

Can an employer deduct payroll taxes as a business expense?

Yes. Employers deduct payroll taxes (both the employee withholding and the employer's share) as a business expense on their tax return. This reduces the business's taxable income. The employee portion is not an expense to the business because it is money withheld on behalf of the employee and sent to the government.

What if an employee is paid in cash?

Employers must pay payroll taxes on all wages, including cash wages. Failing to report cash payments to the IRS is tax evasion. The employer must include cash wages in the employee's W-2 and pay the corresponding payroll taxes, even if the transaction was in cash.