The employer's share of payroll taxes is a fixed percentage of each employee's wages

Employers pay 6.2 percent of each employee's gross wages toward Social Security tax, up to a wage cap that changes yearly. For 2024, that cap is $168,600 — meaning an employer stops paying Social Security tax on any wages above that amount for that employee in that year. The cap increases most years based on wage growth.

Employers also pay 1.45 percent of all employee wages toward Medicare tax, with no wage cap. There is an additional 0.9 percent Medicare tax on wages above $200,000 per year (for single filers) or $250,000 (for married filing jointly), but this applies only to employees, not employers. Employers do not pay this extra portion.

These two taxes — Social Security and Medicare — make up what is called FICA (Federal Insurance Contributions Act). They are separate from federal income tax withholding, which varies by employee and is not an employer cost.

Key Takeaways

  • Employers pay 6.2 percent for Social Security (capped at $168,600 in wages per employee in 2024) and 1.45 percent for Medicare (no cap) on every employee's wages.
  • These percentages are set by federal law and do not change based on the size of the business or the employee's income level.
  • The Social Security wage cap increases most years; you can find the current year's cap on the Social Security Administration website.
  • Employers also pay federal and state unemployment insurance taxes, which vary by state and by the employer's history of layoffs.
  • The employer's payroll tax cost is separate from what the employer withholds from the employee's paycheck for that employee's own taxes.

How the Social Security wage cap works in practice

The wage cap means an employer's Social Security tax obligation stops partway through the year for higher-paid employees. If an employee earns $200,000 per year, the employer pays 6.2 percent on the first $168,600 of wages (in 2024), then pays nothing on the remaining $31,400.

For a salaried employee paid twice per month, the employer calculates the tax on each paycheck until the year-to-date wages hit the cap. Once they do, the employer stops withholding the employee's Social Security tax and stops paying the employer's share. This resets on January 1 of the next year.

The Medicare tax has no such cap. An employer pays 1.45 percent on every dollar an employee earns, no matter how high the salary goes.

Unemployment insurance taxes paid by employers

In addition to FICA taxes, employers pay federal unemployment insurance tax (FUTA) and state unemployment insurance tax (SUTA). These are employer-only costs; employees do not pay into them.

Federal unemployment tax is 6 percent of the first $7,000 of each employee's annual wages. However, employers receive a credit of up to 5.4 percent if they pay state unemployment tax on time, which brings the effective federal rate down to 0.6 percent for most employers. The actual amount depends on whether the state is in good financial standing.

State unemployment tax rates vary widely by state and by industry. Most states charge between 0.5 and 5.4 percent of payroll, though rates can go higher for employers with frequent layoffs. A new business often starts at the state's standard rate and may see the rate change based on how many former employees file for unemployment benefits.

Total employer payroll tax burden

Adding up the pieces: an employer typically pays about 7.65 percent in FICA taxes (6.2 percent Social Security plus 1.45 percent Medicare) on most wages, plus unemployment taxes that range from roughly 0.6 to 5.4 percent depending on the state and the employer's track record. For a rough total, many employers budget between 8 and 13 percent of payroll for all employer-side taxes combined.

This is a cost separate from the employee's own tax withholding. When an employee sees a paycheck stub showing Social Security and Medicare deductions, those are the employee's share (6.2 percent and 1.45 percent respectively). The employer pays an equal amount on top of the employee's salary.

When and how employers pay these taxes

Employers deposit payroll taxes to the federal government on a schedule set by the IRS, usually either monthly or semi-weekly depending on the size of the payroll. Most small employers pay monthly; larger employers pay semi-weekly (twice per week). The IRS notifies employers of their deposit schedule based on payroll size.

State unemployment taxes are typically paid quarterly, though some states require monthly payments. Employers report these payments on state forms and on the federal Form 941 (for income and FICA taxes) and Form 940 (for federal unemployment tax).

Employers who fail to deposit payroll taxes on time face penalties and interest. The IRS also has the authority to pursue the business owner personally if payroll taxes are not paid, even if the business itself cannot afford them.

Self-employed people and payroll taxes

Self-employed individuals pay both the employer and employee share of Social Security and Medicare taxes, totaling 15.3 percent (12.4 percent for Social Security up to the wage cap, plus 2.9 percent for Medicare). This is called self-employment tax and is calculated on Schedule SE of the tax return.

Self-employed people do not pay federal unemployment tax. They may pay state unemployment tax depending on the state and the structure of their business, but this varies.

Frequently Asked Questions

Does the employer's payroll tax rate change based on how much the employee earns?

No. The employer pays 6.2 percent for Social Security and 1.45 percent for Medicare on all employees, regardless of salary. The only difference is that Social Security tax stops once an employee's wages hit the annual cap ($168,600 in 2024), while Medicare tax continues on all wages.

Can an employer deduct payroll taxes from the employee's paycheck?

No. Employers must pay their own share of payroll taxes as a business expense. Employers do withhold the employee's share from the paycheck, but the employer's share is a separate cost to the business. Both amounts go to the government, but only the employee's portion comes from the employee's wages.

What happens if an employer does not pay payroll taxes?

The IRS can assess penalties, interest, and liens against the business. The IRS can also hold the business owner personally liable for unpaid payroll taxes, even if the business closes. This is one of the few tax debts that can follow an owner personally.

Do payroll tax rates change every year?

The percentages (6.2 percent, 1.45 percent) stay the same year to year. However, the Social Security wage cap increases most years based on national wage growth. The current cap is always available on the Social Security Administration website.

Are payroll taxes the same in every state?

Federal FICA taxes (Social Security and Medicare) are the same everywhere. State unemployment tax rates vary significantly by state, ranging from less than 1 percent to over 5 percent depending on the state's rules and the employer's history of layoffs.