Payroll taxes are the federal taxes on wages that fund Social Security, Medicare, and unemployment insurance. Most workers pay them through automatic paycheck withholding, with employers matching the amount and sending both shares to the IRS. Three federal statutes set the rules: the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Self-Employment Contributions Act (SECA). For 2026, the combined employee-and-employer FICA rate is 15.3% on wages up to $184,500, with Medicare continuing above that cap.
FICA: Social Security and Medicare
FICA is the line item most workers see on every pay stub. It funds two programs: Social Security, which pays retirement, survivors, and disability benefits, and Medicare, which pays hospital insurance for people 65 and older.
The tax splits evenly between employer and employee. The Social Security portion is 6.2% from each side, for a combined 12.4%. The Medicare portion is 1.45% from each side, for a combined 2.9%. Add them together and the employee pays 7.65% out of gross wages while the employer pays another 7.65% on top.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates These rates are set by statute and have been stable since 1990.2Social Security Administration. Social Security and Medicare Tax Rates
Employers do the math. They calculate the withholding each pay period, deduct the employee’s share from gross wages, add their own matching share, and remit both. Employees never write a check for FICA; it comes out automatically.
The Social Security Wage Cap and the Additional Medicare Tax
Social Security tax doesn’t apply to every dollar of wages. For 2026, the annual cap is $184,500.3Social Security Administration. Contribution and Benefit Base Once your year-to-date wages pass that number, the 6.2% withholding stops for both you and your employer. The cap adjusts each year based on average wages nationally.4Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
If you hold two jobs and both employers withhold Social Security tax past the annual maximum in combined wages, you claim the overpayment as a refund on your income tax return the following year.5Social Security Administration. Social Security Tax Limits on Your Earnings
Medicare has no wage cap. The 1.45% applies to every dollar of covered wages, no matter how high.6Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax High earners also owe an Additional Medicare Tax of 0.9% once their income crosses a threshold tied to filing status:
- $250,000 for married couples filing jointly
- $200,000 for single filers and heads of household
- $125,000 for married individuals filing separately
Employers begin withholding the 0.9% once wages from that single job cross $200,000 in a calendar year, regardless of filing status. If your actual threshold differs, you settle up on your tax return.7Internal Revenue Service. Topic No. 560, Additional Medicare Tax The Additional Medicare Tax is paid entirely by the employee. The employer owes nothing beyond the standard 1.45%.6Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax
FUTA: The Employer-Only Unemployment Tax
FUTA funds unemployment benefits for workers who lose their jobs. Unlike FICA, it’s paid entirely by the employer. FUTA never appears as a paycheck deduction.8Internal Revenue Service. About Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
The statutory rate is 6.0% on the first $7,000 of wages paid to each employee during the year.9Office of the Law Revision Counsel. 26 USC 3301 – Rate of Tax10Office of the Law Revision Counsel. 26 USC 3306 – Definitions Almost no employer actually pays that much. If you paid your state unemployment taxes in full and on time, you can claim a credit of up to 5.4% against the federal rate, dropping your effective FUTA rate to 0.6%. That’s roughly $42 per employee per year.11Internal Revenue Service. Topic No. 759, Forms 940 and 944 – Deposit Requirements
FUTA is reported on Form 940, due January 31 of the following year. If you deposited all FUTA tax when due, the deadline extends to February 10.11Internal Revenue Service. Topic No. 759, Forms 940 and 944 – Deposit Requirements
Self-Employment Tax Under SECA
If you work for yourself, no employer picks up the other half of FICA. SECA requires you to pay both shares: 12.4% for Social Security and 2.9% for Medicare, totaling 15.3%.12Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax The Additional Medicare Tax of 0.9% also applies to self-employment income above the same filing-status thresholds that apply to wages.
You don’t pay 15.3% on every dollar of net profit. The IRS lets you calculate self-employment tax on 92.35% of your net self-employment income. The adjustment mirrors the tax break employees get, since employees don’t pay FICA on the employer’s share.13Internal Revenue Service. Topic No. 554, Self-Employment Tax
You can also deduct half of your self-employment tax (excluding the Additional Medicare Tax portion) as an above-the-line deduction. That doesn’t lower the self-employment tax itself, but it reduces the income on which you owe income tax.14Office of the Law Revision Counsel. 26 USC 164 – Taxes
Self-employment tax is reported on Schedule SE, filed with Form 1040.15Internal Revenue Service. About Schedule SE (Form 1040) Because no employer is withholding as you go, you’re expected to make quarterly estimated tax payments on Form 1040-ES. The 2026 due dates are April 15, June 15, September 15, and January 15 of the following year.16Internal Revenue Service. When Are Quarterly Estimated Tax Payments Due? Missing them triggers underpayment penalties that accrue interest.
How Employers Deposit and Report
Employers report FICA and federal income tax withholding on Form 941, filed quarterly. The 2026 due dates are April 30, July 31, October 31, and January 31 of the following year.17Internal Revenue Service. Depositing and Reporting Employment Taxes Filing the quarterly return is separate from actually depositing the money, which must go through the Electronic Federal Tax Payment System (EFTPS) or the IRS business tax account.
Deposit frequency depends on the size of your payroll. The IRS assigns each employer to one of two schedules based on a lookback period covering a prior 12-month window:
- Monthly depositors: employers who reported $50,000 or less during the lookback period deposit each month’s taxes by the 15th of the following month.
- Semi-weekly depositors: employers who reported more than $50,000 deposit taxes on Wednesday-through-Friday wages by the following Wednesday, and taxes on Saturday-through-Tuesday wages by the following Friday.
If you accumulate $100,000 or more in undeposited taxes on any single day, you must deposit by the next business day, regardless of your normal schedule.18Internal Revenue Service. Publication 15 (2026), Circular E, Employer’s Tax Guide
Late deposits carry escalating penalties: 2% for one to five days late, 5% for six to fifteen days late, 10% beyond fifteen days, and 15% if the tax still isn’t deposited within ten days of receiving a demand notice.19Internal Revenue Service. Failure to Deposit Penalty The percentages apply to the underpaid amount and add up quickly.
Personal Liability for Withheld Taxes
Payroll taxes withheld from employees are treated as “trust fund” money: the employer holds them in trust for the government. When a business fails to turn those funds over, the IRS can pursue the individuals responsible, not just the company. Under 26 U.S.C. ยง 6672, any person who was responsible for collecting and paying over payroll taxes and who willfully failed to do so faces a penalty equal to the full amount of unpaid tax.20Office of the Law Revision Counsel. 26 USC 6672 – Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax
“Responsible persons” can include business owners, officers, bookkeepers, or anyone with authority to decide which bills get paid. The penalty is personal and follows the individual even if the business closes or files bankruptcy. When multiple people share responsibility, the IRS can pursue all of them. Corporate or LLC status does not shield an individual from this penalty.
Employees Versus Independent Contractors
Whether a worker is an employee or an independent contractor decides who pays what. Employees split FICA with their employer and have taxes withheld. Independent contractors receive their full payment and owe self-employment tax themselves. Misclassifying an employee as a contractor shifts the employer’s share of FICA onto the worker and eliminates withholding, which is why the IRS scrutinizes these arrangements.
The IRS looks at three categories of evidence: behavioral control (does the business direct how, when, and where the work is done), financial control (does the worker invest in equipment, have unreimbursed expenses, and market services to others), and the type of relationship (written contract, benefits, expectation of continuing indefinitely).21Internal Revenue Service. Employee (Common-Law Employee) No single factor decides the answer.
If the IRS reclassifies a contractor as an employee, the business owes back employment taxes, penalties, and interest, potentially for years of misclassification. When the status is genuinely unclear, filing Form SS-8 asks the IRS for an official determination.
State Payroll Taxes Are Separate
Federal payroll taxes are not the whole picture. Every state runs its own unemployment insurance program, funded by employer taxes at rates that vary by industry and claims history. State taxable wage bases range from $7,000 to over $78,000, so the state unemployment bill can be much larger than the federal FUTA obligation for employers in high-wage-base states.
A handful of states and territories also impose mandatory disability insurance taxes deducted from employee wages, with employee rates roughly between 0.2% and 1.3% of covered wages. A growing number of states have enacted paid family and medical leave programs funded by their own payroll taxes. These obligations sit on top of everything the federal rules require, so check your state’s requirements alongside the federal ones.