Employers pay six main payroll taxes, not one

Employers pay Social Security tax, Medicare tax, federal unemployment tax (FUTA), and state unemployment tax (SUTA) on wages they pay their workers. Some employers also pay state income tax withholding on behalf of employees, and a handful of states impose additional payroll taxes. The amount varies by state, by how many employees you have, and by the wages you pay.

The employer's share is separate from what gets withheld from a worker's paycheck. When you see a pay stub showing Social Security and Medicare deductions, those are employee taxes. The employer pays a matching amount to the government on top of the worker's gross wage — that is the employer's tax burden.

Most employers must pay these taxes if they have even one employee. The threshold is low: if you pay someone $50 or more in a calendar quarter, you generally owe payroll taxes on those wages. Self-employed people pay both the employee and employer share themselves, which is why their tax bill is higher.

Key Takeaways

  • Employers pay Social Security tax at 6.2% of wages up to a yearly cap (the cap changes each year), plus Medicare tax at 1.45% with no wage cap.
  • Federal unemployment tax (FUTA) is 6% of the first $7,000 in wages per employee per year, though most employers get a credit that reduces it to 0.6%.
  • State unemployment tax (SUTA) rates vary widely by state and by industry, ranging from less than 1% to over 5% of payroll.
  • Employers must deposit these taxes on a schedule set by the IRS — usually monthly or semi-weekly — and file quarterly and annual returns.
  • Failing to pay payroll taxes on time results in penalties, interest, and potential criminal liability for the business owner.

Social Security and Medicare taxes: the 7.65% employer match

When an employer withholds Social Security and Medicare from a worker's paycheck, the employer must pay an equal amount to the IRS. For Social Security, that is 6.2% of wages up to an annual wage cap. In 2024, the cap is $168,600 per employee — meaning once a worker earns that much in a calendar year, you stop paying Social Security tax on additional wages for that worker. Medicare has no wage cap: you pay 1.45% on all wages, no matter how high.

Together, these are called FICA taxes (Federal Insurance Contributions Act). The employer's combined rate is 7.65% before any wage cap applies. For a worker earning $50,000 a year, the employer pays $3,825 in FICA taxes. For a worker earning $200,000, the employer pays $12,207 (because the Social Security portion stops at $168,600).

There is also an additional Medicare tax of 0.9% that applies to high earners, but only the employee pays that — the employer does not match it.

Federal unemployment tax (FUTA): 0.6% after the credit

Employers pay FUTA to fund unemployment insurance for workers who lose their jobs. The federal rate is 6% of the first $7,000 in wages per employee per year. That sounds steep, but most employers receive a credit of up to 5.4% if they pay state unemployment tax on time, which brings the effective federal rate down to 0.6%.

The $7,000 wage base means you calculate FUTA only on the first $7,000 each worker earns in a calendar year. Once a worker hits $7,000 in wages, you stop paying FUTA on that worker for the rest of the year. For a small business with five employees earning $40,000 each, FUTA is roughly $210 per year (5 workers × $7,000 × 0.6%).

You file FUTA taxes annually on Form 940, due by January 31 of the following year. If you owe more than $500 in a quarter, you must deposit it by the quarterly deadline, not wait until year-end.

State unemployment tax (SUTA): rates vary by state and industry

Every state except a few (like South Dakota and Texas) requires employers to pay state unemployment tax. SUTA rates vary dramatically — from under 1% in some states to over 5% in others. The rate also depends on your industry and your company's history of layoffs. A construction company in one state might pay 3.5%, while a retail company in the same state pays 1.2%.

Most states use a wage base similar to FUTA — typically $7,000 to $42,000 per employee per year, depending on the state. Some states have no wage cap at all. You must file SUTA returns quarterly or annually, depending on your state. Rates are set by the state department of labor or unemployment office, and they change yearly.

If you have employees in multiple states, you pay SUTA in each state where they work. A company with a headquarters in California and a remote worker in New York pays California SUTA on the California worker and New York SUTA on the New York worker.

When and how to deposit payroll taxes

The IRS sets a deposit schedule for Social Security, Medicare, and FUTA taxes. Most employers deposit monthly — taxes withheld and owed during a month are due by the 15th of the following month. Some larger employers must deposit semi-weekly: taxes withheld on Wednesday through Friday are due the following Wednesday, and taxes withheld on Saturday through Tuesday are due the following Friday.

You deposit federal payroll taxes using the Electronic Federal Tax Payment System (EFTPS) or through your payroll processor. The IRS does not accept checks or cash for payroll taxes anymore. State unemployment taxes are deposited according to each state's schedule, usually quarterly.

If you miss a deposit deadline, the IRS charges a penalty. The penalty ranges from 2% to 15% of the unpaid amount, depending on how late the payment is. Interest also accrues daily on unpaid taxes. Repeated failures to pay can result in criminal charges against the business owner.

Reporting payroll taxes: quarterly and annual forms

Employers file Form 941 (Employer's Quarterly Federal Tax Return) four times a year to report Social Security, Medicare, and income tax withholding. This form reconciles what you deposited during the quarter with what you actually owed. If you deposited too much, you get a credit toward the next quarter. If you deposited too little, you owe the difference by the form's due date.

Form 941 is due on the last day of the month following the end of each quarter: April 30 for Q1, July 31 for Q2, October 31 for Q3, and January 31 for Q4. If you file electronically, you get an extra 10 days.

You also file Form 940 (Employer's Annual Federal Unemployment Tax Return) once a year by January 31 to report FUTA taxes. State unemployment agencies require quarterly or annual SUTA returns on their own forms and schedules. At year-end, you file Form W-3 (Transmittal of Wage and Tax Statements) along with copies of each employee's W-2, summarizing all wages and taxes for the year.

Additional payroll taxes in some states

Beyond the standard six, some states impose extra payroll taxes. California, New Jersey, New York, and Rhode Island require employers to pay into a state disability insurance or paid family leave program. These are typically 0.1% to 1% of payroll. A few states have local payroll taxes — for example, some cities in Ohio and Pennsylvania tax employer payroll.

If you operate in multiple states, you need to know the rules for each one. A payroll processor or tax professional can help you track these, because missing a state-specific tax can result in penalties and back taxes.

Frequently Asked Questions

Do I have to pay payroll taxes if I have only one part-time employee?

Yes. If you pay anyone $50 or more in a calendar quarter, you owe payroll taxes. There is no minimum number of employees. Even a single part-time worker triggers the requirement to withhold and pay Social Security, Medicare, and unemployment taxes.

What happens if I do not pay payroll taxes on time?

The IRS charges penalties starting at 2% of the unpaid amount, plus daily interest. Repeated failures can lead to liens on your business assets, wage garnishment of the owner, and criminal prosecution. Payroll tax debt is one of the most aggressively pursued tax debts.

Can I deduct payroll taxes as a business expense?

Yes. The employer's share of Social Security, Medicare, FUTA, and SUTA are all deductible business expenses. You report them on your business tax return. This is one reason employer payroll taxes reduce your taxable profit.

Do I pay payroll taxes on tips my employees receive?

Yes. Employees must report tips to you, and you pay Social Security and Medicare taxes on reported tips. FUTA and SUTA also apply to tips. If tips are not reported, you are not liable for taxes on them, but the employee is.

What is the difference between payroll taxes and income tax withholding?

Payroll taxes (Social Security, Medicare, FUTA, SUTA) fund specific government programs and are owed by the employer. Income tax withholding is money you deduct from paychecks and send to the IRS on behalf of the employee. The employee's income tax liability determines how much to withhold; payroll taxes are fixed percentages.