Employer payroll tax rates are set by federal law and vary by program
Employers pay 6.2% of each employee's gross wages for Social Security, up to a wage cap that changes yearly. For 2024, that cap is $168,600 — meaning you stop withholding Social Security tax once an employee reaches that annual income. Employers also pay 1.45% for Medicare with no wage cap, so this continues on all earnings. Together, these are called FICA taxes (Federal Insurance Contributions Act).
On top of FICA, employers pay federal unemployment tax (FUTA) at 0.6% on the first $7,000 of each employee's annual wages. Most states also charge state unemployment insurance (SUI), which ranges from roughly 0.5% to 5.4% depending on the state and your industry's claims history. The total employer burden — Social Security, Medicare, FUTA, and state unemployment combined — typically falls between 8% and 12% of payroll.
These are separate from what you withhold from employee paychecks. Employees pay their own 6.2% for Social Security and 1.45% for Medicare. As the employer, you match those amounts and send both portions to the IRS.
Key Takeaways
- Employers pay 6.2% for Social Security (capped at $168,600 annual wages per employee in 2024) and 1.45% for Medicare with no cap.
- Federal unemployment tax (FUTA) is 0.6% on the first $7,000 of each employee's wages per year.
- State unemployment insurance rates vary by state and industry but typically range from 0.5% to 5.4% of payroll.
- The wage cap for Social Security increases each year based on average wage growth, so you must check the current year's limit.
- You must remit employer taxes separately from employee withholdings, and the IRS has specific schedules for when payments are due.
How the Social Security wage cap works
The Social Security wage cap is an annual limit on how much of each employee's income is subject to the 6.2% tax. Once an employee earns that amount in a calendar year, you stop calculating Social Security tax on additional wages. The cap rises most years because it is tied to the national average wage index.
For example, if the 2024 cap is $168,600 and an employee earns $200,000, you pay 6.2% on $168,600 only — not on the remaining $31,400. This means high-earning employees and their employers pay less in total Social Security tax than lower-wage workers might expect. The cap resets on January 1 each year, so an employee who changed jobs mid-year and earned $100,000 at one employer and $100,000 at another would have the cap applied separately at each workplace.
Medicare has no wage cap. You pay 1.45% on all wages, no matter how high the employee's income climbs. Additionally, there is a 0.9% Medicare surtax on wages over $200,000 (for single filers) or $250,000 (for married filing jointly), which employers must withhold from employee paychecks — this is separate from the standard 1.45% employer contribution.
Federal and state unemployment tax explained
FUTA (federal unemployment tax) is straightforward: 0.6% on the first $7,000 of each employee's annual wages. Once an employee reaches $7,000 in gross pay for the year, you stop calculating FUTA on that person. This means the maximum FUTA tax per employee per year is $42 (0.6% of $7,000). You pay FUTA only; employees do not contribute.
State unemployment insurance (SUI) is more complex because rates vary widely. Most states use an experience rating system, meaning your rate depends on how many former employees have filed for unemployment benefits. A new business typically starts at a standard rate, often around 2% to 3%, but this can drop if you have few claims or rise if claims are frequent. Some states also charge a small administrative fee on top of the SUI rate.
A few states — Alaska, New Jersey, and Pennsylvania — require employees to contribute a small portion of SUI as well. In those states, you withhold from the employee paycheck and remit both portions. Most other states place the full burden on the employer. Check your state's labor department website for your current rate and whether employee contributions apply.
When and how to pay employer payroll taxes
The IRS uses a deposit schedule based on how much payroll tax you owe. Most small employers are on a semi-weekly schedule: taxes withheld on Wednesday through Friday are due the following Wednesday, and taxes from Saturday through Tuesday are due the following Friday. Some larger employers are on a monthly schedule. You determine your schedule based on total tax liability in a lookback period.
You deposit FICA taxes (Social Security and Medicare) and federal income tax withholding together using the Electronic Federal Tax Payment System (EFTPS) or through your payroll processor. FUTA is filed separately on Form 940, which is due by January 31 of the following year, though deposits may be required quarterly if you owe more than $500 in a quarter.
State unemployment taxes are filed and paid according to your state's schedule — usually quarterly or annually. Some states require monthly payments. You will receive a notice from your state labor department with your account number and payment due dates. Missing these deadlines can result in penalties and interest, so many employers use payroll software that tracks all dates automatically.
How payroll tax changes with employee status and wages
Payroll tax obligations differ based on whether a worker is classified as an employee or an independent contractor. Employees trigger FICA, FUTA, and income tax withholding. Independent contractors do not — you issue them a 1099 form instead, and they pay their own self-employment tax. Misclassifying a worker as a contractor when they should be an employee can result in back taxes, penalties, and interest.
Wages for payroll tax purposes include salary, hourly pay, bonuses, commissions, and paid time off. Some items do not count: employer-paid health insurance premiums (in most cases), certain retirement plan contributions, and dependent care benefits up to $5,250 per year. Understanding what counts as taxable wages is important because it affects your total tax liability.
If you have seasonal employees or workers who earn different amounts throughout the year, your tax liability will fluctuate. An employee earning $200,000 in one quarter and $0 in the next still triggers the Social Security wage cap only once per calendar year, not per quarter. This is why tracking cumulative wages across the full year matters.
Tax credits and reductions for employers
The federal government offers a few credits that can reduce employer payroll tax burden. The Work Opportunity Tax Credit (WOTC) provides a credit of up to $2,400 per employee if you hire from certain target groups — veterans, long-term unemployment recipients, ex-felons, and others. You must obtain certification before hiring and file Form 8850 with your tax return.
The Employer Retention Credit (ERC) was a temporary pandemic-relief program that allowed employers to claim credits for wages paid during specific quarters. This program has ended for most employers, though some retroactive claims may still be filed. Check the IRS website to see if your situation qualifies for any remaining provisions.
Some states offer credits for hiring in economically distressed areas or for employing people with disabilities. These vary by state and industry. Your state labor department or a payroll tax professional can tell you whether any credits apply to your business.
Common mistakes employers make with payroll taxes
One frequent error is misclassifying workers. Treating an employee as a contractor to avoid payroll taxes is illegal and costly. The IRS uses a three-part test (behavioral control, financial control, and relationship type) to determine status, and misclassification can trigger audits and back-tax bills.
Another mistake is missing deposit deadlines. Even one day late can trigger a penalty. Many employers use payroll software or a payroll processor specifically to avoid this — the software calculates taxes and reminds you when payment is due. If you handle payroll manually, mark deposit dates on your calendar and set reminders.
Failing to update the wage cap or tax rates each year is also common. The Social Security wage cap changes annually, and state unemployment rates may shift. If you use outdated figures, you will either overpay or underpay. Review your payroll setup each January to confirm rates and caps are current.
Frequently Asked Questions
Do I have to pay payroll taxes for a spouse or family member who works in my business?
Yes, if they are a true employee. However, sole proprietors and partners in partnerships do not pay FICA taxes on their own income — they pay self-employment tax instead. If a spouse is an employee (not an owner), you must withhold and pay payroll taxes. Consult a tax professional to determine the right structure for your situation.
What happens if I cannot pay payroll taxes on time?
The IRS charges penalties and interest on late payments. Penalties start at 2% for payments up to 5 days late and increase from there. If you cannot pay, contact the IRS immediately to set up a payment plan. Ignoring the debt will not make it go away and will result in liens or wage garnishment.
Does the wage cap for Social Security apply to bonuses and commissions?
Yes. Bonuses, commissions, and all other forms of compensation count toward the wage cap. Once an employee reaches the cap for the year, no further Social Security tax is due on any additional earnings, regardless of the form they take.
Can I deduct payroll taxes from my business taxes?
Yes. Employer payroll taxes are a business expense and are deductible on your tax return. You cannot deduct the employee portion of FICA that you withhold — that belongs to the employee — but you can deduct your employer contribution.
What if an employee works in multiple states?
You pay state unemployment insurance to the state where the employee works. If an employee works in two states during the year, you pay SUI to both states based on the wages earned in each. Some states have reciprocal agreements that simplify this, but you still need to report and pay each state separately.