Employers pay four main payroll taxes, not three
When you see your paycheck, you notice taxes withheld from your wages. But your employer also pays taxes on your behalf — taxes that never appear on your stub because they come straight from the company's account. These are employer payroll taxes, and they exist alongside the taxes your employer withholds from you.
The four employer taxes are Social Security, Medicare, federal unemployment insurance (FUTA), and state unemployment insurance (SUTA). The first two are shared taxes — you and your employer each pay a portion. The unemployment taxes are employer-only. Together, these taxes fund the Social Security system, Medicare, and unemployment benefits for workers who lose their jobs.
The rates and caps change slightly each year, and state unemployment rates vary widely. But the structure and purpose of each tax remain the same across all employers.
Key Takeaways
- Employers pay 6.2% of each employee's wages toward Social Security, up to a wage cap that changes annually (in 2024 it was $168,600).
- Employers pay 1.45% of all employee wages toward Medicare with no wage cap, plus an additional 0.9% Medicare tax on wages over a threshold.
- Federal unemployment tax (FUTA) is 6% of the first $7,000 of each employee's annual wages, though employers can claim a credit for state unemployment taxes paid.
- State unemployment tax (SUTA) rates range from less than 1% to over 5% depending on the state and the employer's history of layoffs.
- Employers must remit these taxes to the IRS and state agencies on a schedule set by the IRS, typically monthly or quarterly.
Social Security tax: 6.2% with an annual wage cap
Your employer pays 6.2% of your gross wages to Social Security, matching the 6.2% withheld from your paycheck. This tax funds Social Security retirement, disability, and survivor benefits. The employer's portion is not withheld from your pay — it is a separate cost to the business.
The wage cap means that once an employee earns a certain amount in a year, the employer stops paying Social Security tax on additional wages. In 2024, that cap was $168,600. In 2025, it is $176,100. The cap increases most years based on average wage growth. Once an employee crosses the cap, the employer's Social Security tax obligation for that worker stops for the rest of that year, even if they earn more.
Self-employed people pay both the employee and employer portions (12.4% total), but traditional employees and their employers split the cost evenly.
Medicare tax: 1.45% with no wage cap, plus an extra 0.9%
Your employer pays 1.45% of your gross wages toward Medicare, matching the 1.45% withheld from your paycheck. Unlike Social Security, there is no wage cap — the employer pays this tax on every dollar you earn, no matter how much you make in a year.
There is also an additional Medicare tax of 0.9% that applies to high earners. When an employee's wages exceed $200,000 in a year (or $250,000 for married couples filing jointly), the employer must pay an extra 0.9% Medicare tax on the wages above that threshold. This additional tax was created by the Affordable Care Act and funds Medicare.
The combined employer Medicare obligation is 1.45% on all wages plus 0.9% on wages above the threshold for high earners. Self-employed people again pay both portions.
Federal unemployment tax (FUTA): 6% on the first $7,000 per employee
FUTA stands for Federal Unemployment Tax Act. Employers pay 6% of the first $7,000 of each employee's annual wages — a maximum of $420 per employee per year. This tax funds the federal unemployment insurance system and covers administrative costs of state unemployment programs.
The $7,000 wage base is set by federal law and does not change. Once an employee earns $7,000 in a calendar year, the employer's FUTA obligation for that worker ends. A new employee hired mid-year still triggers the full $7,000 base.
Employers can claim a credit against their FUTA tax for state unemployment taxes they pay. In most cases, this credit reduces the effective FUTA rate to 0.6%, making the actual federal cost much lower than the 6% rate suggests. The credit exists to encourage states to maintain their own unemployment systems.
State unemployment tax (SUTA): Rates vary by state and employer history
SUTA is state unemployment tax, and the rate depends entirely on which state the employee works in and the employer's track record. States set their own rates, which range from less than 1% to over 5% of payroll. The wage base also varies by state — some states use the same $7,000 base as FUTA, while others use higher amounts.
New employers typically pay a standard rate set by their state, often around 2% to 3%. Established employers pay an experience rate based on how many former employees have filed for unemployment benefits. An employer with few layoffs pays a lower rate; an employer with many former workers drawing benefits pays a higher rate. This system is called experience rating or merit rating.
Some states also impose additional taxes on employers for workforce training programs, disability insurance, or paid family leave. These vary by state and are not part of the standard FUTA and SUTA framework.
When employers must pay these taxes and to whom
Employers do not pay all four taxes on the same schedule. Social Security and Medicare taxes are withheld from employee paychecks and must be remitted to the IRS along with the employer's matching portion. The IRS sets the deposit schedule — typically monthly for most employers, though some large employers deposit twice per week.
FUTA is paid annually to the IRS, usually by January 31 of the following year, though quarterly deposits may be required if the employer owes more than $500 in a quarter. SUTA is paid to the state unemployment agency, and the schedule varies by state — some states require quarterly payments, others monthly.
Employers file Form 941 with the IRS quarterly to report Social Security and Medicare taxes. They file Form 940 annually to report FUTA. State forms for SUTA vary by state but typically accompany quarterly or annual unemployment tax payments.
How these taxes affect small business costs
For a small business, employer payroll taxes are a significant ongoing expense. A business paying one employee $50,000 per year owes roughly $3,825 in employer Social Security and Medicare taxes, plus $420 in FUTA, plus state unemployment tax (which could range from $200 to $2,500 depending on the state and the employer's experience rating). That totals between $4,445 and $6,745 per employee annually — money that does not appear on the employee's paycheck but comes directly from business revenue.
This is why payroll taxes are sometimes called the "hidden cost" of employment. The employee sees only the taxes withheld from their check, but the employer's total tax burden is roughly 7.65% to 8% of payroll for Social Security and Medicare alone, plus unemployment taxes on top.
Some employers reduce this burden by classifying workers as independent contractors, though the IRS has strict rules about who qualifies. Misclassifying an employee as a contractor can result in back taxes, penalties, and interest.
Frequently Asked Questions
Do employers pay payroll taxes on tips?
Employers pay Social Security and Medicare taxes on reported tips, but the employee is responsible for reporting tips to the employer. FUTA and SUTA are also owed on tips. If tips are not reported, the employer has no obligation to pay taxes on them — but the employee still owes income tax on unreported tips.
What happens if an employer does not pay payroll taxes?
The IRS pursues unpaid payroll taxes aggressively. Employers face penalties, interest, and potential criminal charges. The IRS can also hold individual owners and officers personally liable for unpaid payroll taxes through a penalty called the "responsible person penalty," even if the business itself cannot pay.
Do employers pay payroll taxes on bonuses and commissions?
Yes. Bonuses, commissions, and any other compensation are subject to the same payroll taxes as regular wages. The employer pays Social Security tax (up to the annual cap), Medicare tax, FUTA, and SUTA on these amounts just as they do on salary.
Can an employer deduct payroll taxes from their business taxes?
Yes. Employer payroll taxes are a business expense and are deductible on the employer's tax return. This reduces the employer's taxable income but does not reduce the amount of payroll tax owed to the IRS or state agencies.
Are there any payroll taxes that do not apply to all employers?
Most employers pay all four taxes, but some nonprofit organizations, certain government entities, and religious organizations may be exempt from some payroll taxes. Additionally, some states have special taxes or exemptions for specific industries. Check with your state's tax agency or a tax professional for your situation.