Employer-paid payroll taxes are the taxes a business owes from its own funds on top of every dollar of wages, separate from what it withholds from employee paychecks. For 2026, the federal baseline is 7.65% of each employee’s pay for Social Security and Medicare, plus federal and state unemployment taxes worth several hundred dollars or more per worker per year. Once you layer in state paid leave, local transit taxes, and workers’ compensation, most employers should budget 10% to 15% above gross wages for the employer-side cost.
Social Security and Medicare
Federal law requires every employer to pay a matching share of Social Security and Medicare taxes on employee wages.1Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax For most businesses this is the single largest payroll tax, and it applies to every payroll run.
Social Security is 6.2% of each employee’s wages up to an annual cap. For 2026 the cap is $184,500.2Social Security Administration. Contribution and Benefit Base Once an employee crosses that threshold in a calendar year, you stop owing 6.2% on additional wages for that person. At the cap, you’d pay $11,439 in Social Security tax for one high-earning employee.
Medicare is 1.45% on all wages with no cap.1Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax Employees earning above $200,000 owe an additional 0.9% Medicare surtax, but that comes out of their check. Your rate stays at 1.45% on every dollar you pay them.
Combined, your FICA obligation is 7.65% up to the Social Security cap, then 1.45% above it. Your employees pay the same rates from their side, and those withholdings do not offset what you owe.
Federal Unemployment Tax
The Federal Unemployment Tax Act funds the national unemployment system and is paid only by employers. You cannot deduct it from employee pay. The statutory rate is 6.0% on the first $7,000 of wages paid to each employee during the calendar year.3Office of the Law Revision Counsel. 26 USC 3301 – Rate of Tax4Office of the Law Revision Counsel. 26 USC 3306 – Definitions
Almost no employer pays the full 6.0%. Federal law allows a credit of up to 5.4% for paying state unemployment taxes on time, which drops the effective rate to 0.6%, or a maximum of $42 per employee per year.5Office of the Law Revision Counsel. 26 USC 3302 – Credits Against Tax You report FUTA annually on Form 940.6Internal Revenue Service. About Form 940
Credit Reduction States
When a state borrows from the federal government to pay unemployment benefits and doesn’t repay within the allowed window, employers in that state lose part of the 5.4% credit. The reduction starts at 0.3% and grows by 0.3% for each additional year the debt is outstanding.7Internal Revenue Service. FUTA Credit Reduction For 2025, California employers faced a 1.2% reduction and the U.S. Virgin Islands a 4.5% reduction.8Federal Register. Notice of FUTA Credit Reductions Applicable for 2025 A California employer’s effective FUTA rate for 2025 was 1.8% instead of 0.6%, raising the per-employee cost from $42 to $126. The list is republished each November.
State Unemployment Tax
Every state runs its own unemployment insurance program funded by employer taxes, called SUTA or SUI depending on the state.9U.S. Department of Labor. Unemployment Insurance Tax Topic Two variables drive what you actually pay: your rate and your state’s taxable wage base.
Your rate is set by your experience rating, which reflects how many former employees have filed claims against your account. A stable employer with few claims may pay under 1%. A business with heavy turnover can see rates above 10%. New businesses receive a standard rate, often 2% to 4%, until they build enough claim history to earn their own experience rating, which usually takes two to three years.
The taxable wage base varies enormously. Some states tax only the first $7,000 per employee, matching FUTA; others apply SUTA to wages above $78,000. Depending on the state, your per-employee SUTA can run under $100 or well over $1,000 at the same nominal rate. Your state workforce agency mails an annual notice with your updated rate and wage base.
Other State and Local Employer Taxes
A growing patchwork of state and local taxes falls on employers alone. Each is small, but they add up and each has its own filing.
Roughly a dozen states now run paid family and medical leave programs, and many require employer contributions in the range of about 0.3% to 0.5% of wages. Some split the cost with employees; some exempt small employers below a headcount threshold. If you have staff in multiple states, expect different rates in each.
Some jurisdictions also impose transit district taxes, workforce training taxes, or occupational privilege taxes on the employer side. Rates are typically fractions of a percent, but they attach to wages earned within the taxing district, so multi-location employers need to track each worker’s physical work site. These are easy to miss at payroll setup and often surface during audits.
If You’re Self-Employed
Sole proprietors, partners, and independent contractors don’t have an employer to split FICA with, so they pay both halves. Self-employment tax is 15.3% of net earnings: 12.4% for Social Security up to the $184,500 wage base in 2026, and 2.9% for Medicare with no cap.10GovInfo. 26 USC 1401 – Rate of Tax Earnings above $200,000 (or $250,000 if married filing jointly) carry an extra 0.9% Medicare surtax. You can deduct the employer-equivalent half (7.65%) when calculating adjusted gross income, but the cash outlay is the full 15.3%, paid through quarterly estimates.
Who Counts as an Employee
Every tax above hinges on one threshold question: employee or independent contractor. If a worker is an employee, you owe FICA, FUTA, SUTA, and every applicable state and local payroll tax. If they’re a legitimate contractor, you owe none of it.
The IRS weighs behavioral control, financial control, and the nature of the relationship between the parties.11Internal Revenue Service. Worker Classification 101 Misclassification isn’t just a paperwork issue: if the IRS or a state reclassifies a worker, you owe back taxes for every payroll tax you should have paid, plus penalties and interest, going back as far as the misclassification existed. Several high-profile companies have paid settlements above $100 million over classification disputes. When status is unclear, filing IRS Form SS-8 for a formal determination is far cheaper than defending an audit.
When to Deposit and File
Knowing what you owe is only half the job. The IRS also enforces when you deposit it. Your schedule for FICA and withheld income taxes depends on the size of your liability during a lookback period.12Internal Revenue Service. Topic No. 757, Forms 941 and 944 – Deposit Requirements
- Monthly depositor: if you reported $50,000 or less during the lookback period (July 1 two years ago through June 30 last year), deposit by the 15th of the following month.
- Semiweekly depositor: if you reported more than $50,000, deposit within a few days of each payday on a Wednesday/Friday schedule.
- Next-day rule: if you accumulate $100,000 or more in taxes on any single day, deposit by the next business day. Hitting that threshold also makes you a semiweekly depositor for the rest of the year and the following year.
Most employers file Form 941 quarterly. The 2026 deadlines are April 30, July 31, October 31, and January 31, 2027.13Internal Revenue Service. Instructions for Form 941 (Rev. March 2026) Very small employers with total annual liability of $1,000 or less may qualify to file Form 944 once a year instead.14Internal Revenue Service. About Form 944
FUTA is filed annually on Form 940. But if your FUTA liability tops $500 in any quarter, you have to deposit that amount by the end of the following month rather than waiting until year-end.
Penalties, and Why This One Can Get Personal
Payroll tax enforcement is among the most aggressive areas of IRS collection, and in some cases the IRS can reach past the business entity and assess owners and officers personally.
Late deposits carry a tiered penalty:15Internal 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 an IRS notice demanding payment: 15%
The tiers don’t stack. Ten days late costs 5%, not 2% plus 5%. But the penalty applies to each late deposit separately.
Filing Form 941 or 940 late is a separate 5% of unpaid tax for each month or partial month the return is overdue, capped at 25%, and it runs on top of any deposit penalty.16Internal Revenue Service. Failure to File Penalty
The Trust Fund Recovery Penalty
The employee share of FICA and withheld income tax is called “trust fund” money because you hold it for the government. If it isn’t paid over, the IRS can assess a penalty equal to 100% of the unpaid amount against any responsible person who willfully failed to pay.17Office of the Law Revision Counsel. 26 USC 6672
A responsible person is anyone with authority to decide which bills get paid: corporate officers, directors, controlling shareholders, partners, and sometimes bookkeepers who exercise independent judgment about disbursements.18Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty If you could sign checks and chose to pay vendors instead of the IRS when cash was tight, that counts as willful. Bad intent isn’t required. An LLC, S-corp, or C-corp won’t shield you, and the IRS can pursue multiple responsible persons for the same debt at once.
The True Cost Per Employee
Employer payroll taxes are easy to underestimate one line at a time. For a single employee earning $60,000 in 2026:
- Social Security at 6.2%: $3,720
- Medicare at 1.45%: $870
- FUTA at 0.6% on the first $7,000: $42
- SUTA, assuming 3% on the first $15,000: $450
That’s about $5,082 in employer-only federal and state payroll taxes, or roughly 8.5% on top of salary. Add state paid leave contributions, local transit taxes, and workers’ compensation insurance (required in nearly every state), and 10% to 15% above gross wages is a reasonable planning figure for most industries.