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

Employers pay 6.2% for Social Security and 1.45% for Medicare on each employee's wages, totaling 15.3%. This is separate from what the employee pays — it comes directly out of the employer's operating budget. The employer withholds the employee's half (another 15.3% combined) from paychecks and remits both amounts to the IRS.

The Social Security portion has a wage cap: in 2024, employers stop paying the 6.2% once an employee reaches $168,600 in annual wages. Medicare has no cap — the 1.45% applies to all wages, no matter how high. Employers with high-earning staff will pay Social Security tax on only part of their payroll but Medicare tax on all of it.

These are mandatory taxes. Employers cannot reduce them, defer them, or pass them to the employee as a choice. The IRS expects payment quarterly, and failure to remit triggers penalties and interest.

Key Takeaways

  • Employers pay 6.2% for Social Security and 1.45% for Medicare on employee wages, totaling 15.3% of payroll.
  • The Social Security portion stops at $168,600 per employee per year (2024), but Medicare tax continues on all wages.
  • This employer tax is separate from the employee's payroll tax and is a direct business expense.
  • Employers must remit both the employer tax and the withheld employee tax to the IRS quarterly.

How the Social Security wage cap affects payroll costs

Once an employee's year-to-date wages hit the Social Security wage base limit, the employer stops paying the 6.2% on additional earnings for that year. In 2024, that limit is $168,600. An employee earning $200,000 annually will have Social Security tax withheld only on the first $168,600; the employer pays the 6.2% only on that same amount.

This means payroll tax as a percentage of total wages drops for high-earning employees. A business with mostly minimum-wage workers pays 15.3% on nearly all payroll. A business with executives earning $300,000 each pays 15.3% on the first $168,600 of each executive's pay, then only 1.45% (Medicare) on the remaining $131,400. The wage cap resets January 1 each year.

The Social Security wage base changes annually based on national wage growth. The IRS announces the new limit in October for the following year, so employers need to update payroll systems before January.

Medicare tax for high earners and self-employed workers

Employers also withhold an additional 0.9% Medicare tax from employees earning over $200,000 per year (single filers) or $250,000 (married filing jointly). This is separate from the standard 1.45% Medicare tax and applies only to wages above those thresholds. The employer withholds it from the employee's paycheck but does not pay a matching employer portion — only the employee pays this extra 0.9%.

Self-employed workers and business owners pay both the employer and employee sides of all payroll taxes. A self-employed person pays 15.3% on net business income (up to the Social Security wage cap) plus the additional 0.9% Medicare tax if income exceeds the threshold. They can deduct half of the self-employment tax as a business expense when filing taxes.

When and how employers remit payroll taxes

Employers must deposit payroll taxes with the IRS on a schedule determined by the amount they owe. Most small businesses deposit quarterly — by April 15, June 15, September 15, and January 15 of the following year. Larger employers may be required to deposit more frequently, sometimes weekly or biweekly. The IRS assigns a deposit schedule based on total tax liability in a lookback period.

Deposits are made through the Electronic Federal Tax Payment System (EFTPS) or through a bank or payroll processor. Employers also file Form 941 (Employer's Quarterly Federal Tax Return) each quarter, reporting total wages paid, taxes withheld, and taxes paid. This form reconciles what was withheld from employees with what the employer paid on their behalf.

Missing a deposit deadline results in a penalty of 2% to 15% of the unpaid amount, depending on how late the payment is. The IRS also charges interest on unpaid taxes.

Payroll tax obligations for different business structures

Sole proprietors and partners in a partnership do not pay employer payroll tax on themselves — they pay self-employment tax instead, which covers both the employer and employee portions. Employees of a sole proprietorship or partnership do trigger employer payroll tax obligations for the business.

S-corporation owners who pay themselves a salary must pay employer payroll tax on that salary, just as any employer would. However, S-corp owners can take additional distributions that are not subject to payroll tax, which is a tax planning strategy. C-corporation owners who are employees pay and receive payroll tax like any other employee.

Nonprofit organizations are exempt from federal income tax but still pay employer payroll tax. Religious organizations may have limited exemptions, but most nonprofits remit payroll taxes on the same schedule as for-profit businesses.

State and local payroll taxes employers may also owe

Federal employer payroll tax is only part of the picture. Most states impose their own payroll taxes — some call it state income tax withholding, others call it state unemployment insurance (SUI). A few states have no income tax but still require SUI contributions. Rates and wage bases vary widely by state.

Some cities and counties also impose local payroll taxes or earnings taxes. New York City, for example, requires employers to withhold and remit a city income tax. San Francisco has a payroll tax on employers. These are in addition to federal and state taxes and have their own deposit schedules and forms.

An employer operating in multiple states must track and remit payroll taxes to each state separately. Payroll software typically handles this, but the employer remains responsible for accuracy and timeliness.

Frequently Asked Questions

Can an employer reduce payroll tax by classifying workers as independent contractors?

No. The IRS has specific rules about who qualifies as an independent contractor versus an employee. Misclassifying an employee as a contractor to avoid payroll taxes is illegal and results in back taxes, penalties, and interest. The IRS can reclassify workers based on the nature of the work and the control the employer exercises.

What happens if an employer does not remit payroll taxes?

The IRS pursues collection aggressively. Penalties start at 2% for deposits made 1 to 5 days late and increase to 15% for deposits more than 120 days late. Interest accrues daily. The IRS can also hold the business owner personally liable for unpaid payroll taxes, even if the business is a corporation, through the "responsible person" doctrine.

Do employers pay payroll tax on bonuses and commissions?

Yes. Any compensation paid to an employee — bonuses, commissions, overtime pay, paid time off — is subject to the same 15.3% employer payroll tax (up to the Social Security wage cap). The tax applies to the total wages paid in a year, not just base salary.

Is there a payroll tax deduction for employers?

Yes. Employers can deduct the employer portion of payroll taxes as a business expense when calculating taxable income. This is different from the employee's ability to deduct payroll taxes — employees cannot deduct their portion. The deduction reduces the employer's federal income tax liability but does not reduce the payroll tax itself.