Employers pay half of Social Security and Medicare taxes, plus unemployment insurance

Your employer pays 6.2% of your gross wages toward Social Security and 1.45% toward Medicare. You pay the same percentages from your paycheck, so the burden is split. Your employer also pays federal unemployment insurance (FUTA), which ranges from 0.6% to 6% of your first $7,000 in annual wages per employee, depending on the employer's history of layoffs. Most employers pay closer to 0.6% because they receive a credit for paying state unemployment insurance.

Beyond these federal taxes, employers in most states pay state unemployment insurance (SUTA), which varies widely by state and industry. Some states also require employers to fund state disability insurance or paid family leave programs. A few states have additional payroll taxes for workforce training or other purposes. The total employer-side payroll tax burden typically ranges from 8% to 12% of payroll, though this varies significantly by location and business size.

Key Takeaways

  • Employers pay 6.2% for Social Security and 1.45% for Medicare on each employee's wages, matching what employees pay.
  • Federal unemployment insurance (FUTA) costs employers 0.6% to 6% of the first $7,000 per employee annually, though most pay the lower rate after receiving credits.
  • State unemployment insurance (SUTA) is required in all states and varies by state and industry, sometimes reaching 5% or higher for new employers.
  • Some states impose additional payroll taxes for disability insurance, paid family leave, or workforce development, adding to the employer's total tax burden.
  • The employer's total payroll tax obligation is separate from income tax withholding and is a direct cost to the business.

Social Security and Medicare taxes split between employer and employee

The Federal Insurance Contributions Act (FICA) requires employers to withhold Social Security and Medicare taxes from employee paychecks and to pay matching amounts themselves. For Social Security, that is 6.2% of wages up to an annual cap (the cap adjusts yearly; in 2024 it was $168,600). Once an employee's wages exceed the cap in a calendar year, neither the employee nor the employer pays Social Security tax on additional earnings that year.

Medicare tax has no wage cap. Both employer and employee pay 1.45% on all wages, regardless of how much the employee earns. Employees earning over $200,000 (or $250,000 for married couples filing jointly) pay an additional 0.9% Medicare tax on income above that threshold, but this extra tax falls on the employee only, not the employer.

The employer's share of FICA is a business expense and reduces the company's taxable income. The employer must remit both the withheld employee portion and the employer portion to the IRS, usually monthly or semi-weekly depending on payroll size.

Federal unemployment insurance (FUTA) covers job loss benefits

The Federal Unemployment Tax Act (FUTA) requires employers to pay a tax that funds unemployment benefits when workers are laid off or lose their jobs through no fault of their own. The federal rate is 6% of the first $7,000 of each employee's annual wages. However, employers receive a credit of up to 5.4% if they pay state unemployment insurance on time, which means most employers pay only 0.6% federally.

FUTA applies to employers with a payroll of $1,500 or more in any calendar quarter, or who employ at least one person on any day in 20 different weeks during the year. Agricultural employers, household employers, and certain nonprofits have different thresholds. The tax is paid only by the employer; it does not come out of employee wages.

The $7,000 wage base resets each calendar year, so an employer calculates FUTA on the first $7,000 each employee earns from January through December. Once an employee's cumulative wages hit $7,000 in a year, no further FUTA tax is owed on that employee's wages for the remainder of that year.

State unemployment insurance (SUTA) varies by state and employer history

Every state except South Dakota requires employers to carry state unemployment insurance (SUTA), which funds state-level jobless benefits. The tax rate depends on the state and on the employer's experience rating — a measure of how many former employees have filed for unemployment benefits. New employers typically pay a standard rate set by the state, often between 2% and 3.4%. Established employers with few layoffs may pay as little as 0.5%, while those with high turnover or many claims can pay 5% or more.

The wage base for SUTA also varies by state. Some states tax only the first $7,000 of annual wages per employee (matching the federal FUTA base), while others tax up to $42,000 or more. A few states have no wage cap at all. This means an employer's total SUTA liability can range from a fraction of 1% to over 5% of payroll, depending on location and history.

Employers must register with their state's labor department and file quarterly or annual SUTA reports. The state uses these reports to track wages and calculate the employer's experience rating for the following year. Paying SUTA on time is crucial because late payment can result in loss of the federal FUTA credit, causing the employer's federal rate to jump from 0.6% to 6%.

State disability and paid family leave programs add to employer costs

Five states — California, New Jersey, New York, Rhode Island, and Washington — require employers to contribute to state disability insurance (SDI) programs. These programs provide partial wage replacement to workers who cannot work due to illness or injury not covered by workers' compensation. Employer contribution rates range from 0.1% to 1.2% of payroll, depending on the state and the employee's wage level.

Several states also mandate employer contributions to paid family leave (PFL) programs, which provide wage replacement when workers take time off to care for a newborn, bond with an adopted child, or care for a seriously ill family member. California, New Jersey, New York, Rhode Island, and Washington all have PFL programs with employer contributions. Rates typically range from 0.1% to 1% of payroll. Some states allow employers and employees to share the cost, while others place the full burden on the employer.

A few additional states have smaller payroll taxes for workforce development, apprenticeship programs, or other purposes. Employers operating in multiple states must comply with each state's requirements, which can significantly increase total payroll tax obligations for multi-state businesses.

How employer payroll taxes differ from income tax withholding

Payroll taxes and income tax withholding are separate obligations. Income tax withholding is money the employer deducts from an employee's paycheck and remits to federal and state tax authorities on the employee's behalf. The employer is acting as a collector, not paying a tax itself. The withheld amount reduces the employee's take-home pay and is credited toward the employee's annual tax liability.

By contrast, employer payroll taxes — Social Security, Medicare, FUTA, and SUTA — are direct costs to the employer. These taxes do not come out of employee wages. They are business expenses that reduce the company's profit and taxable income. An employer must pay these taxes even if the business is not profitable.

The employer must remit both withheld income taxes and employer payroll taxes to the appropriate tax authorities. The IRS and state tax agencies track these payments separately. Failure to pay either can result in penalties, interest, and legal action against the business.

Frequently Asked Questions

Do employers pay payroll taxes on all employees?

Most yes, but there are exceptions. Certain family members, some religious workers, and employees of specific nonprofits may be exempt. Additionally, FUTA applies only to employers meeting size thresholds. Check your state's labor department website or consult a payroll professional to confirm whether specific workers are subject to payroll taxes.

What happens if an employer doesn't pay payroll taxes?

The IRS and state tax agencies can assess penalties of 5% to 25% of the unpaid amount, plus interest that compounds daily. The employer can also face criminal charges, liens on business assets, and personal liability if the business is a sole proprietorship or partnership. Employees may still receive unemployment or disability benefits, and the government pursues the employer for repayment.

Can an employer deduct payroll taxes from employee wages?

No. Employers cannot deduct FUTA, SUTA, SDI, or PFL from employee paychecks. These are employer-only taxes. Employers can withhold Social Security and Medicare taxes (FICA) from wages, but that is required by law and is separate from the employer's matching contribution. Deducting employer payroll taxes from wages is illegal.

Do payroll taxes apply to independent contractors?

No. Independent contractors are responsible for their own self-employment taxes, which cover Social Security and Medicare. Employers do not withhold or pay payroll taxes on contractor payments. However, misclassifying an employee as a contractor to avoid payroll taxes can result in significant penalties and back taxes owed to the IRS and state.