Yes, Gusto does take out taxes. Every Gusto payroll plan automatically calculates, withholds, deposits, and files payroll taxes at the federal, state, and local level at no extra charge, covering both the amounts pulled from each employee’s paycheck and the amounts you owe as the employer.1Gusto. Payroll Tax Management and Compliance Software What follows is exactly which taxes come out, which ones Gusto pays on top of payroll, when the money leaves your account, and where your responsibility as the employer still begins and ends.
What Gusto Withholds From Each Paycheck
On every payroll run, Gusto reduces the employee’s gross pay by several federal and state taxes before issuing the net check.
Federal income tax. Gusto reads each employee’s Form W-4 to determine filing status, dependents, multiple-job adjustments, and any extra withholding the employee has requested.2Internal Revenue Service. Topic No. 753, Form W-4, Employees Withholding Certificate It then applies the 2026 IRS withholding tables, which use seven marginal brackets from 10% to 37%.3Internal Revenue Service. 2026 Publication 15-T Only the income falling within each bracket is taxed at that bracket’s rate.
Social Security and Medicare. Gusto withholds 6.2% of gross pay for Social Security and 1.45% for Medicare.4Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates Social Security withholding stops once an employee’s year-to-date wages cross the 2026 wage base of $184,500.5Social Security Administration. Contribution and Benefit Base Medicare has no cap.
Additional Medicare tax. Once an employee’s year-to-date wages pass $200,000, Gusto begins withholding an extra 0.9% on the amount above that threshold and continues through year-end. The $200,000 trigger applies regardless of the employee’s filing status, and employers do not match this tax.6Internal Revenue Service. Topic No. 560, Additional Medicare Tax7Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
State and local income tax. Gusto uses each employee’s work address and the state’s withholding tables to deduct the right amount every pay period. Most states levy an income tax; a handful do not. When an employee lives in one state and works in another, roughly half the income-tax states have reciprocal agreements that let you withhold only for the home state once the employee files the residency form. Where no agreement exists, the employee may owe tax in both jurisdictions.
What Gusto Pays on Top of Payroll
Beyond deducting from the employee’s check, Gusto calculates and pays several employer-side taxes out of your bank account.
Employer FICA match. You owe 6.2% Social Security and 1.45% Medicare on the same wages your employees do. Gusto pulls this alongside the withheld amounts.
Federal unemployment tax (FUTA). The statutory rate is 6% on the first $7,000 of each employee’s annual wages.8Office of the Law Revision Counsel. 26 USC 3301 – Rate of Tax A credit for state unemployment tax paid drops the effective rate to 0.6% in most states, so the real cost is usually $42 per employee per year. Gusto calculates, debits, and deposits it.9Internal Revenue Service. Instructions for Form 940
State unemployment insurance (SUI). This is typically an employer-only cost with a taxable wage base that varies by state. Gusto applies whatever rate your state has assigned you.
How Pre-Tax Deductions Affect the Numbers
Not every dollar of gross pay is subject to every tax, and this changes what Gusto withholds.
Contributions to a Section 125 cafeteria plan, such as health insurance premiums paid through salary reduction, are generally exempt from federal income tax, Social Security, Medicare, and FUTA.10Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans Both you and the employee save on FICA.
Traditional 401(k) deferrals are excluded from federal income tax withholding but remain subject to Social Security and Medicare.11Internal Revenue Service. Retirement Plan FAQs Regarding Contributions On the W-2, those deferrals appear in Box 3 and Box 5 but not Box 1. Gusto splits this automatically, which is useful to know when year-end totals don’t appear to reconcile at a glance.
When Gusto Deposits and Files Everything
After each payroll run, Gusto debits the total tax amount from your linked bank account and holds it until the deposit is due. Your IRS deposit schedule depends on how much employment tax you reported during the lookback period: $50,000 or less puts you on monthly deposits, above that puts you on semiweekly.12Internal Revenue Service. Topic No. 757, Forms 941 and 944 – Deposit Requirements Gusto tracks which one applies and pays accordingly.
Quarterly, Gusto files Form 941 to report withheld federal income tax and FICA. The deadlines are April 30, July 31, October 31, and January 31.13Internal Revenue Service. Instructions for Form 941
At year-end, Gusto files Form 940 for your annual FUTA liability9Internal Revenue Service. Instructions for Form 940 and generates W-2s for every employee plus the W-3 transmittal to the Social Security Administration. For tax year 2026, W-2 and W-3 filings are due February 1, 2027.14Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 For any contractor you paid $600 or more, Gusto files Form 1099-NEC by January 31.15Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
You receive digital copies of every return filed, which you should keep for at least four years.
What Gusto Needs From You First
Gusto can’t calculate anything without accurate data, and missing or wrong information is where most payroll tax problems begin.
On the employer side, you need a Federal Employer Identification Number,16Internal Revenue Service. Get an Employer Identification Number plus a state tax withholding account and an SUI account for every state where you have employees. When you add a work address in a new state, Gusto partners with Middesk to help with state tax registration, though some business types and local registrations aren’t covered.17Gusto Help Center. Let Gusto Help You With State Tax Registration
Each employee must submit a Form W-42Internal Revenue Service. Topic No. 753, Form W-4, Employees Withholding Certificate and a completed Form I-9.18U.S. Citizenship and Immigration Services. I-9, Employment Eligibility Verification Home and work addresses drive which state and local jurisdictions apply, so an employee who moves across state lines needs updated addresses in Gusto right away. Otherwise the platform keeps withholding for the old state.
Federal law also requires reporting each new employee to your state within 20 days of hire, with the employee’s name, address, Social Security number, and hire date, plus your company details.19The Administration for Children and Families. New Hire Reporting Gusto files these reports automatically in most states.
Contractors Are Different
Gusto does not withhold taxes from payments to 1099 contractors. They receive the full amount and handle their own income tax and self-employment tax. At year-end, Gusto issues Form 1099-NEC for any contractor you paid $600 or more.20Internal Revenue Service. About Form 1099-NEC, Nonemployee Compensation
One exception: backup withholding. If a contractor doesn’t supply a valid taxpayer identification number on their W-9 or the IRS has flagged them for underreporting, you must withhold 24% from their payments.21Internal Revenue Service. Backup Withholding Gusto can process backup withholding when you flag the contractor.
Where You’re Still on the Hook
Automated tax handling isn’t the same as automated legal responsibility. As the employer, you remain liable for your payroll taxes even when a platform is doing the mechanics.
Late deposits trigger IRS failure-to-deposit penalties on a sliding scale:22Internal Revenue Service. Failure to Deposit Penalty
- 1 to 5 days late: 2% of the unpaid deposit
- 6 to 15 days late: 5%
- More than 15 days late: 10%
- More than 10 days after a first IRS notice, or upon demand for immediate payment: 15%
The tiers don’t stack. A 20-day-late deposit is a flat 10% penalty.
The bigger risk is the Trust Fund Recovery Penalty. When a business fails to pay over the income tax and FICA it withheld, the IRS can assess a penalty equal to 100% of those unpaid trust fund taxes against any individual who was responsible for collecting or paying them and who willfully failed to do so.23Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty Willfulness doesn’t require bad intent; paying vendors instead of the IRS with available funds counts. The liability is personal and can reach officers, directors, shareholders with financial authority, and bookkeepers with check-signing power.
Running payroll through Gusto reduces this exposure substantially because the platform pulls and deposits taxes automatically. But if your bank account is short when Gusto tries to debit it, or if you override a scheduled payroll, the liability lands on you. Keep the payroll account funded ahead of every run, and check Gusto’s tax payment confirmations regularly so a bounced debit doesn’t turn into a penalty notice months later.