What employer payroll taxes are and why you calculate them
Employer payroll taxes are the taxes your business owes based on what you pay your employees. Unlike income tax withholding (which comes out of the employee's paycheck), employer taxes are a separate cost to the business itself. You owe them even if the employee owes nothing.
The main employer taxes are Social Security tax, Medicare tax, and federal unemployment tax (FUTA). Some states also require state unemployment tax (SUTA). You calculate each one as a percentage of the employee's gross wages, then deposit them with the IRS or your state on a schedule set by law — usually monthly or semi-weekly depending on how much you owe.
The calculation is straightforward arithmetic, but the deposit deadlines are strict. Missing a deadline triggers penalties and interest, so most payroll software handles this automatically. If you run payroll yourself, you need to know the rates, the wage base limits, and when deposits are due.
Key Takeaways
- Employer Social Security tax is 6.2% of each employee's gross wages up to $168,600 per year (2024 limit; this changes annually).
- Employer Medicare tax is 1.45% of all gross wages with no wage cap, plus an additional 0.9% Medicare tax on wages over $200,000 per employee per year.
- Federal unemployment tax (FUTA) is 6% of the first $7,000 in wages per employee per year, but you can claim a credit if you pay state unemployment tax, reducing it to 0.6% in most cases.
- You deposit employer taxes on a schedule based on how much you owe: semi-weekly if you owe $50,000 or more per quarter, or monthly if you owe less.
- State unemployment tax (SUTA) rates and wage bases vary by state and by your industry's experience rating.
Social Security tax: 6.2% up to the annual wage base
For 2024, you owe 6.2% of each employee's gross wages, but only on the first $168,600 they earn in the calendar year. Once an employee hits that wage base limit, you stop calculating Social Security tax on their additional earnings for the rest of that year.
The wage base limit changes every year — the IRS announces it in October for the following year. If an employee changes jobs mid-year, each employer calculates Social Security tax independently up to the limit. The employee may end up paying Social Security tax on more than the limit across multiple employers, but the employer calculation is straightforward: multiply gross wages by 6.2%, stop when the employee reaches the annual limit.
Example: An employee earns $3,500 per month. In January through April, you owe 6.2% × $3,500 = $217 per month. By May, their year-to-date earnings hit $168,600. From June onward, you owe no Social Security tax on their wages for the rest of 2024.
Medicare tax: 1.45% with no wage cap, plus 0.9% over $200,000
Medicare tax has two parts. The base rate is 1.45% of all gross wages with no annual limit — you owe it on every dollar the employee earns. There is no wage base cap like Social Security has.
The second part is an additional 0.9% Medicare tax on wages over $200,000 per employee per year. This applies to the employee's total wages from all employers combined, so if an employee works two jobs and earns more than $200,000 total, both employers may withhold the additional 0.9%. The employee can claim a credit on their tax return if they overpaid, but as the employer, you calculate it based on what you pay them.
Example: An employee earns $5,000 per week. You owe 1.45% × $5,000 = $72.50 per week in base Medicare tax. If their year-to-date earnings exceed $200,000, you also owe 0.9% × $5,000 = $45 per week in additional Medicare tax on that paycheck.
Federal unemployment tax (FUTA): 6% reduced to 0.6% with state tax credit
FUTA is 6% of the first $7,000 in wages per employee per year. However, if you pay state unemployment tax (SUTA), you can claim a credit against your FUTA liability. In most states, this credit is 5.4%, which reduces your FUTA rate to 0.6%.
You calculate FUTA only on the first $7,000 of each employee's annual wages. Once an employee reaches $7,000 in year-to-date earnings, you stop calculating FUTA on their wages for the rest of that year. Unlike Social Security, the $7,000 wage base does not change annually.
Example: An employee earns $2,000 per month. In January through March, you owe 0.6% × $2,000 = $12 per month (assuming you pay SUTA and claim the credit). In April, their year-to-date earnings hit $8,000, so you owe FUTA only on $1,000 of that month's wages: 0.6% × $1,000 = $6. From May onward, you owe no FUTA on their wages for 2024.
State unemployment tax (SUTA): Rates and wage bases vary by state
SUTA rates and wage bases are set by each state and vary widely. Some states tax the first $7,000 of wages; others tax up to $42,000 or more. Rates range from under 1% to over 5% depending on your industry and your company's experience rating (how many claims your former employees have filed).
When you first register as an employer in a state, you receive a standard rate. Over time, if your employees file few unemployment claims, your rate may drop. If claims are frequent, your rate rises. You must check your state's labor department website or your annual rate notice to find your current rate and wage base.
SUTA is deposited separately from federal taxes, usually monthly or quarterly depending on the state. Some states require quarterly reporting even if no deposit is due. Failure to report on time can result in penalties and loss of the FUTA credit, which would increase your federal unemployment tax back to 6%.
Deposit schedules: Semi-weekly or monthly based on tax liability
The IRS uses a lookback period to determine your deposit schedule. If your total federal payroll tax liability (income tax withholding plus employer and employee Social Security and Medicare taxes) was $50,000 or more in a four-quarter lookback period, you are a semi-weekly depositor. If it was less than $50,000, you are a monthly depositor.
Semi-weekly depositors must deposit taxes 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 must deposit by the 15th of the following month. Missing a deposit deadline triggers a penalty, even if you file your quarterly return on time.
FUTA is reported quarterly on Form 941-X or annually on Form 940, but deposits are due on the same semi-weekly or monthly schedule as other payroll taxes. SUTA deposits follow your state's schedule, which is usually monthly or quarterly.
How to organize the calculation: A step-by-step example
Assume you have one employee earning $4,000 gross per paycheck, paid bi-weekly. It is the first paycheck of 2024.
| Tax Type | Rate | Wage Base / Limit | Calculation | Amount Owed |
|---|---|---|---|---|
| Social Security | 6.2% | $168,600 annual | 6.2% × $4,000 | $248.00 |
| Medicare (base) | 1.45% | No limit | 1.45% × $4,000 | $58.00 |
| Medicare (additional) | 0.9% | Over $200,000 annual | Not yet applicable | $0.00 |
| FUTA | 0.6% | $7,000 annual | 0.6% × $4,000 | $24.00 |
| SUTA (example: 2.5%) | 2.5% | Varies by state | 2.5% × $4,000 | $100.00 |
| Total Employer Payroll Taxes | $430.00 |
This $430 is what the employer owes. The employee's own Social Security and Medicare taxes (also 6.2% and 1.45%) are withheld from their paycheck separately and are not part of the employer tax calculation.
Frequently Asked Questions
Do I owe employer payroll taxes if I am a sole proprietor or independent contractor?
No. Employer payroll taxes apply only if you have employees on your payroll. If you are self-employed and have no employees, you owe self-employment tax instead, which is calculated on your business income on your personal tax return. Once you hire your first employee, you register with the IRS and begin calculating and depositing employer taxes.
What happens if I miss a payroll tax deposit deadline?
The IRS charges a penalty based on how late the deposit is: 2% if paid one to five days late, 5% if paid six to fifteen days late, and 10% if paid more than fifteen days late. Interest also accrues on the unpaid amount. If you discover a missed deposit, deposit the amount immediately and contact the IRS to report it. Penalties may be reduced if you have a good compliance history.
Can I pay employer payroll taxes quarterly instead of monthly or semi-weekly?
No. The deposit schedule is determined by your tax liability in the lookback period and is mandatory. However, if your total quarterly tax liability is under $2,500, you can pay it with your quarterly Form 941 return instead of depositing separately. This is called the safe harbor rule. Check with the IRS or a payroll professional to see if you may have access to.
Do I owe employer taxes on tips or bonuses?
Yes. Employer payroll taxes apply to all forms of compensation: wages, tips reported by the employee, bonuses, commissions, and paid time off. Calculate them the same way as regular wages, applying the same rates and wage base limits.
What if an employee works in multiple states?
You owe SUTA in the state where the employee works, not necessarily where your business is located. If an employee works in two states, you may owe SUTA in both. Federal taxes (Social Security, Medicare, FUTA) are calculated the same way regardless of state. Consult your state labor departments or a payroll professional if you have multi-state employees.