The employer payroll tax rate is 15.3% of each employee's wages, split between Social Security and Medicare

As an employer, you pay 6.2% for Social Security and 1.45% for Medicare on every dollar your employees earn, up to the Social Security wage base limit. That 7.65% is your share; your employees pay the other 7.65% through withholding from their paychecks. The Social Security portion stops once an employee reaches $168,600 in annual wages for 2024 — that threshold changes each year. Medicare has no wage cap, so you pay 1.45% on all wages, no matter how high.

You also owe an additional 0.9% Medicare tax on wages above $200,000 per employee per year. This is separate from the standard 1.45% and applies to high-wage earners. Unlike the employee-side additional Medicare tax, the employer version has no income threshold — you pay it on the excess wages themselves, not based on the employee's total household income.

These are federal taxes. Some states and cities add their own payroll taxes on top — rates and rules vary widely by location. You will need to check with your state's department of revenue and your city or county to know your full obligation.

Key Takeaways

  • You pay 6.2% for Social Security (capped at $168,600 in wages per employee in 2024) and 1.45% for Medicare on all wages, totaling 7.65% before any state or local taxes.
  • An additional 0.9% Medicare tax applies to wages over $200,000 per employee per year.
  • The Social Security wage base limit increases each year based on national wage growth; check the IRS website or your payroll provider for the current year's amount.
  • State and local payroll taxes vary by location and can add significantly to your total employer tax burden.
  • You must deposit these taxes on a schedule set by the IRS — usually monthly or semi-weekly depending on your payroll size.

How the Social Security wage base limit works

The Social Security wage base is the maximum amount of an employee's annual wages on which you must pay the 6.2% Social Security tax. For 2024, that limit is $168,600. Once an employee earns that much in a calendar year, you stop paying Social Security tax on additional wages for the rest of that year.

This means if an employee earns $170,000 in 2024, you pay 6.2% on the first $168,600 ($10,453.20) and nothing on the remaining $1,400. The employee's withholding also stops at that threshold. The wage base changes annually — it rose from $160,200 in 2023 to $168,600 in 2024 — so you need to update your payroll system each January or whenever your payroll provider tells you to.

Deposit schedules and payment deadlines

You cannot simply pay payroll taxes once a year. The IRS requires deposits on a schedule based on how much tax you owe. Most employers deposit monthly or semi-weekly. If you owe less than $2,500 in a quarter, you can pay quarterly instead, but this is rare for employers with multiple employees.

Semi-weekly depositors must pay by Wednesday if payroll was processed Wednesday through Friday of the previous week, or by Friday if payroll was processed Saturday through Tuesday. Monthly depositors pay by the 15th of the following month. Your payroll provider or accountant can tell you which schedule applies to you — the IRS assigns it based on your tax liability in a lookback period.

Missing a deposit deadline results in penalties and interest. The penalty starts at 2% of the unpaid tax if you deposit one to five days late, and increases from there. It is cheaper to borrow money to make the deposit on time than to pay the penalty.

State and local payroll taxes vary widely

Federal payroll tax is the same everywhere, but state and local taxes are not. Some states have no income tax at all and therefore no state payroll tax withholding requirement. Others tax wages at rates ranging from 1% to over 13%. A few cities — including New York City and Washington, D.C. — add their own payroll taxes on top of state taxes.

You must research your specific state and city requirements. Contact your state's department of revenue or labor, or ask your accountant or payroll provider. Failing to withhold and deposit state and local taxes can result in penalties, interest, and personal liability — meaning the state can come after you personally, not just the business.

Self-employed and contractor considerations

If you are a sole proprietor or partner, you do not pay employer payroll tax on yourself — instead, you pay self-employment tax, which is 15.3% of your net business income (12.4% for Social Security, 2.9% for Medicare). You pay both the employer and employee portions. This is higher than what a W-2 employee and their employer pay combined because you get no employer deduction.

If you hire contractors classified as 1099 independent contractors, you do not pay any payroll tax on their wages. They are responsible for their own self-employment tax. However, misclassifying an employee as a contractor to avoid payroll taxes is illegal and can result in back taxes, penalties, and interest. The IRS and state labor departments actively audit this.

How to calculate your total payroll tax obligation

Start with your total payroll for the pay period. Multiply by 7.65% — that is your base employer payroll tax. Then check whether any employee has exceeded the Social Security wage base for the year; if so, subtract the excess from the 6.2% calculation only, not the 1.45% Medicare portion. Finally, add 0.9% on any wages over $200,000 per employee.

Example: You have one employee earning $5,000 per pay period (biweekly). Base tax is $5,000 × 7.65% = $382.50. Neither the wage base nor the $200,000 threshold applies yet. You owe $382.50 per pay period. If this employee reaches $168,600 in mid-year, you stop paying the 6.2% portion on subsequent paychecks but continue the 1.45% Medicare tax.

Most employers use payroll software or a payroll service to calculate this automatically. Doing it by hand is error-prone and time-consuming. If you use a service like ADP, Gusto, or Paychex, the software handles the calculation and often reminds you of deposit deadlines.

Frequently Asked Questions

Do I have to pay payroll tax on tips my employees receive?

Yes. You must withhold and pay payroll tax on reported tips. Employees are required to report tips to you, and you treat them as wages for tax purposes. If an employee does not report tips, you are not liable for the tax on unreported amounts, but you should document that the employee failed to report them.

What if I have seasonal employees who work only part of the year?

You pay payroll tax on their wages during the weeks they work. The Social Security wage base is annual, so if a seasonal employee earns $168,600 or more in the months they work, you stop paying the 6.2% portion once they hit that threshold. Track their year-to-date earnings carefully to avoid overpaying or underpaying.

Can I deduct payroll taxes I pay as a business expense?

Yes. The employer portion of payroll tax is deductible as a business expense on your tax return. You cannot deduct the employee portion you withhold — that is their tax liability, not yours. Your accountant will handle this on your business return.

What happens if I cannot pay payroll taxes on time?

Contact the IRS immediately. You can request a short-term extension (up to 120 days) or set up a payment plan. Penalties and interest accrue daily, but the IRS is often willing to work with employers who communicate early. Ignoring the debt makes it much worse.

Are payroll taxes different for nonprofits?

No. Nonprofits pay the same employer payroll taxes as for-profit businesses. Tax-exempt status under Section 501(c)(3) does not exempt you from payroll tax obligations. You still withhold and deposit employee taxes and pay your employer share.