Employer payroll taxes are a percentage of what you pay your employees, split between Social Security, Medicare, and unemployment insurance
As an employer, you pay payroll taxes on every dollar of wages you issue. These taxes fund Social Security, Medicare, and state and federal unemployment programs. The total rate is 7.65% for Social Security and Medicare combined, plus unemployment insurance on top of that — which varies by state and your industry's claims history.
Unlike income tax withholding, which you deduct from an employee's paycheck, employer payroll taxes come directly from your business. You pay them alongside the employee's share, meaning the total cost to fund Social Security and Medicare is 15.3% — half from the employee's check, half from your pocket.
Key Takeaways
- Employer Social Security and Medicare taxes total 7.65% of gross wages, paid by the business separate from employee withholding.
- Federal unemployment insurance (FUTA) is 6% of the first $7,000 in annual wages per employee, though most employers receive a credit that reduces it to 0.6%.
- State unemployment insurance (SUTA) rates range from roughly 0.5% to 5.4% depending on your state and your claims history.
- You report and pay these taxes quarterly on Form 941, with deposits due on specific dates tied to your payroll schedule.
- Self-employed people pay both the employer and employee share of Social Security and Medicare, totaling 15.3% on net earnings.
Social Security and Medicare taxes: the 7.65% breakdown
The Social Security portion is 6.2% of gross wages, up to a wage cap. For 2024, that cap is $168,600 per employee per year — meaning you stop paying Social Security tax once an employee reaches that threshold in a calendar year. Once they cross it, you still pay Medicare but not Social Security for the remainder of that year.
The Medicare portion is 2.35% of all gross wages with no cap. Unlike Social Security, you pay Medicare tax on every dollar an employee earns, no matter how high their annual income goes. There is also an additional 0.9% Medicare tax on wages over $200,000 per employee per year, though this is typically withheld from the employee's check rather than paid by the employer in most cases.
These two taxes combined — 6.2% Social Security plus 2.35% Medicare — equal 8.55%, not 7.65%. The 7.65% figure refers only to the base Social Security and Medicare rates before the additional Medicare tax applies. For most small to mid-size employers, 7.65% is the practical rate you will encounter.
Federal unemployment insurance (FUTA): 6% with a credit
FUTA funds the federal unemployment system and is calculated on the first $7,000 of each employee's annual wages. The statutory rate is 6%, which would be $420 per employee per year. However, most employers receive a credit of up to 5.4% if they pay state unemployment insurance on time, reducing the effective federal rate to 0.6% — or $42 per employee per year.
You only pay FUTA if you meet the threshold: either you paid $1,500 or more in wages in any quarter of the current or prior year, or you had at least one employee for at least 20 weeks in the current or prior year. Most employers meet this threshold. The credit is automatic if your state is not in "credit reduction" status, which is rare.
FUTA is reported annually on Form 940, due by January 31 of the following year. Deposits are due quarterly if you owe more than $500 in a quarter; otherwise, you can pay with your annual return.
State unemployment insurance (SUTA): rates vary widely by state
SUTA rates are set by each state and vary dramatically. New states or those with low claims histories might pay 0.5% to 1%, while states with high unemployment claims or new employers might pay 3% to 5.4% or higher. The rate is applied to a wage base that also varies by state — some states use the same $7,000 federal base, others use $8,000, $9,000, or higher.
Your SUTA rate is determined by your experience rating, which tracks how many unemployment claims your former employees have filed. If claims are low, your rate drops. If claims are high, your rate rises. New employers typically start at the standard rate for their state, then adjust based on claims history over time.
You report SUTA quarterly or annually depending on your state, usually on a state-specific form. Deposits are typically due monthly or quarterly. Contact your state's labor department or unemployment insurance agency for your specific rate and reporting schedule.
How to calculate your total payroll tax burden
To find your total employer payroll tax cost per employee, add the three components:
| Tax Type | Rate | Wage Base | Example (annual wage $50,000) |
|---|---|---|---|
| Social Security | 6.2% | Up to $168,600 | $3,100 |
| Medicare | 2.35% | All wages | $1,175 |
| FUTA (effective) | 0.6% | First $7,000 | $42 |
| SUTA (example) | 2.0% | Varies by state | $1,000 |
| Total (example) | $5,317 |
In this example, an employee earning $50,000 costs the employer an additional $5,317 in payroll taxes — about 10.6% of their wage. The exact amount depends on your state's SUTA rate and wage base. Use your state's rate and your actual wage figures to calculate your own total.
When and how to pay employer payroll taxes
Social Security and Medicare taxes (the 7.65%) are reported and paid quarterly on Form 941, the Employer's Quarterly Federal Tax Return. Deposits are due on specific dates: April 30 for Q1, July 31 for Q2, October 31 for Q3, and January 31 for Q4. If you are a large employer (paying more than $50,000 in payroll taxes in a lookback period), you may be required to deposit more frequently — semi-weekly or even daily.
FUTA is reported annually on Form 940, due January 31. If you owe more than $500 in a quarter, you must deposit that quarter's amount by the end of the following month.
SUTA is reported to your state, with timing and forms varying by state. Most states require quarterly reporting and monthly or quarterly deposits. Check your state labor department website for your specific deadlines.
You can pay federal taxes through the Electronic Federal Tax Payment System (EFTPS) or through your payroll processor. Most modern payroll software calculates and tracks these taxes automatically, flagging deposit due dates.
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, totaling 15.3% on your net business income. This is called self-employment tax and is reported on Schedule SE. You also get a deduction for half of what you pay, which reduces your taxable income.
Self-employed people do not pay FUTA or SUTA unless they have employees on payroll. Once you hire an employee, you become subject to all the employer taxes described above for that employee.
Frequently Asked Questions
Do I have to pay payroll taxes if I have only one employee?
Yes, if that employee earns wages. Payroll taxes apply to any employee earning any amount. The only exception is if the employee is a spouse in a sole proprietorship or partnership, which has different rules — consult a tax professional on that scenario.
What happens if I miss a payroll tax deposit deadline?
The IRS charges penalties and interest. Penalties range from 2% to 15% of the unpaid amount depending on how late the deposit is. Interest accrues daily. If the failure is repeated or willful, penalties can be much higher. Contact the IRS immediately if you miss a deadline to discuss payment options.
Can I deduct payroll taxes as a business expense?
Yes. Employer payroll taxes are a deductible business expense. You report them on your business tax return. Self-employed people can deduct half of their self-employment tax as an adjustment to income on their individual return.
Do payroll taxes change every year?
Social Security and Medicare rates stay the same, but the Social Security wage cap increases each year based on inflation. SUTA rates can change annually based on your claims history and your state's economic conditions. FUTA rates are set by federal law but the credit can change if your state enters credit reduction status, which is uncommon.
What is the difference between payroll taxes and income tax withholding?
Payroll taxes fund Social Security, Medicare, and unemployment programs and are split between employer and employee. Income tax withholding is money you deduct from an employee's paycheck for federal, state, and local income taxes — the employee's share only. You remit withheld income tax to the government, but it is not a tax on the employer.