Employers pay half of Social Security and Medicare taxes, plus unemployment insurance

Your employer pays Social Security tax at 6.2% of your wages, Medicare tax at 1.45% of your wages, and federal unemployment insurance tax (FUTA) as a percentage of your payroll. These are separate from the taxes withheld from your paycheck. You pay the other half of Social Security and Medicare; your employer covers FUTA entirely. Some states also require employers to pay state unemployment insurance (SUTA), which varies by state and industry.

The employer's share is a business expense, not deducted from your pay. It exists alongside what comes out of your check. Understanding which taxes fall on the employer side matters because it shows the full cost of employment — what you see withheld is only part of the payroll tax picture.

Key Takeaways

  • Employers pay 6.2% Social Security tax and 1.45% Medicare tax on your wages, matching the amounts withheld from your paycheck.
  • Federal unemployment insurance (FUTA) is paid entirely by employers at a rate that varies by state and employer history, not shared with employees.
  • Most states require employers to pay state unemployment insurance (SUTA), with rates that differ based on industry and the employer's claims history.
  • The employer's payroll tax payments are separate from income tax withholding and do not reduce the wages you receive.

Social Security and Medicare taxes split between employer and employee

Social Security and Medicare operate on a matching contribution system. When your employer withholds 6.2% for Social Security from your paycheck, your employer also pays 6.2% on your behalf. The same applies to Medicare: 1.45% comes out of your pay, and 1.45% comes from your employer. Together, these create the full 12.4% Social Security contribution and 2.9% Medicare contribution that fund these programs.

This split has been in place since 1984 for Medicare and since the Social Security program began in 1935. The employer's portion is not optional — it is a mandatory payroll tax on every employer with employees. Self-employed people pay both halves themselves, which is why their self-employment tax is roughly double what an employee sees withheld.

If you earn over $200,000 (or $250,000 if married filing jointly), an additional 0.9% Medicare tax applies to income above that threshold. Your employer withholds this extra amount from your paycheck. The employer does not pay a matching share of this additional Medicare tax — it is an employee-only tax.

Federal unemployment insurance (FUTA) is employer-only

FUTA funds unemployment benefits when you lose your job. Unlike Social Security and Medicare, the employee pays nothing toward FUTA. The employer pays the entire tax, currently set at 6.0% of the first $7,000 of each employee's annual wages. This means the maximum FUTA tax per employee per year is $420, though most employers pay less due to credits.

Employers receive a credit of up to 5.4% if they pay state unemployment insurance (SUTA) on time. This credit reduces the federal rate to as low as 0.6% in most cases. The credit exists to encourage states to maintain their own unemployment systems rather than relying entirely on federal funds. An employer in a state with a well-funded unemployment program may pay closer to 0.6% federal FUTA, while an employer in a state with a depleted fund may pay the full 6.0%.

FUTA applies only to wages up to $7,000 per employee per calendar year. Once an employee reaches $7,000 in annual wages, no more FUTA tax is owed on that employee for the rest of the year. This wage base is set by federal law and does not change annually.

State unemployment insurance (SUTA) rates vary by state and employer history

SUTA funds state unemployment benefits and is required in all 50 states except South Dakota, which has no state unemployment program. Like FUTA, the employee does not contribute — the employer pays the full amount. SUTA rates range from roughly 0.1% to over 5% of payroll, depending on the state and the employer's experience rating.

An experience rating (or merit rating) means an employer's SUTA rate rises or falls based on how many former employees have drawn unemployment benefits. An employer with few claims pays a lower rate; an employer with many claims pays a higher rate. This system encourages employers to minimize layoffs. New employers typically pay a standard rate until they have been in business long enough to earn a rating, usually three to five years.

SUTA wage bases also vary by state. Some states tax all wages; others cap the amount of wages per employee subject to SUTA, similar to FUTA's $7,000 limit. A few states have higher wage bases — for example, some tax up to $40,000 or more per employee per year. Check your state's labor department website or your payroll provider to find your state's specific rate and wage base.

How employer payroll taxes appear on tax forms and paychecks

The taxes your employer pays do not show up on your paycheck stub. Your stub shows only the taxes withheld from your pay: federal income tax, Social Security, Medicare, and any state or local income tax. The employer's portion is recorded separately on the employer's tax forms and business records.

Employers report all payroll taxes on Form 941 (Employer's Quarterly Federal Tax Return), which covers federal income tax withholding, Social Security, and Medicare. FUTA is reported separately on Form 940 (Employer's Annual Federal Unemployment Tax Return). State unemployment taxes are reported to each state's labor department on forms specific to that state, usually quarterly or annually depending on the state.

At the end of the year, your employer sends you a Form W-2, which shows your gross wages, federal income tax withheld, Social Security wages and tax withheld, and Medicare wages and tax withheld. The employer's matching contributions do not appear on your W-2 because they are not part of your taxable income — they are a business expense for the employer.

Self-employed people pay both employer and employee shares

If you are self-employed, you pay both the employee and employer portions of Social Security and Medicare through self-employment tax. This means you pay 12.4% for Social Security and 2.9% for Medicare (plus the additional 0.9% Medicare tax if your income exceeds the threshold), for a total of 15.3% before any income tax.

Self-employed people do not pay FUTA or SUTA. Those taxes explore only to employers with employees. However, self-employed people may pay into state unemployment systems in some states if they choose to, which would make them may be able to access for unemployment benefits — but this is optional and varies by state.

On your tax return, you calculate self-employment tax on Schedule SE (Self-Employment Tax) and report it on your Form 1040. You can deduct half of your self-employment tax as a business expense, which slightly reduces your overall tax burden compared to paying the full amount with no deduction.

Payroll tax rates and wage bases for 2024

Social Security tax is 6.2% on wages up to $168,600 for 2024. This wage base increases each year based on average wage growth. Once an employee reaches $168,600 in annual wages, no more Social Security tax is owed for that year. Medicare tax is 1.45% on all wages with no wage base limit. The additional 0.9% Medicare tax applies to wages over $200,000 for single filers.

FUTA is 6.0% on the first $7,000 of each employee's annual wages, reduced to 0.6% in most states due to the SUTA credit. SUTA rates and wage bases are set by each state and change annually. Contact your state's labor department or your payroll provider for your specific state's current rates.

These rates are current as of 2024 and may change. The Social Security wage base increases annually; FUTA's $7,000 base has remained stable for many years. SUTA rates and wage bases change at different times depending on the state.

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. Employers do not pay FUTA or SUTA on tips. Employees are responsible for reporting tips to their employer, and the employer withholds and pays the matching payroll taxes based on the reported amount.

What happens if an employer does not pay payroll taxes?

The employer is liable for the unpaid taxes plus penalties and interest. The IRS can pursue collection through liens, levies, and wage garnishment. Employers who willfully fail to pay payroll taxes can face criminal charges. Employees' Social Security and Medicare credits may be affected if taxes are not reported, though the IRS works to correct records when employers eventually pay or are caught.

Do payroll taxes explore to bonuses and commissions?

Yes. Social Security, Medicare, FUTA, and SUTA all explore to bonuses, commissions, and other forms of compensation. The same tax rates and wage bases explore. Once an employee reaches the Social Security or FUTA wage base for the year, no additional tax is owed on bonuses received after that point, but Medicare tax continues on all wages.

Can an employer deduct payroll taxes as a business expense?

Yes. Employer payroll taxes are a deductible business expense on the employer's tax return. This is one reason payroll taxes reduce the employer's overall tax burden — the taxes themselves lower taxable income. Employees cannot deduct the employer's payroll taxes because they are not paid by the employee.