Payroll tax is the group of federal taxes tied directly to wages: Social Security, Medicare, and unemployment insurance. Unlike income tax, which funds the government’s general budget, payroll taxes fund specific insurance programs, and they follow their own rules for who pays, how much, and when. The combined Social Security and Medicare rate is 15.3% of covered wages, split evenly between employee and employer, with Social Security applying only to the first $184,500 a worker earns in 2026.
FICA: Social Security and Medicare
The Federal Insurance Contributions Act is the core of payroll tax. Each side — employee and employer — pays 6.2% of wages toward Social Security and 1.45% toward Medicare, for 7.65% per party and 15.3% total.1Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax2Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax The employee’s share is withheld from each paycheck; the employer’s matching share comes out of the business’s own funds.
Social Security has an annual earnings cap called the wage base. For 2026, that cap is $184,500. Once cumulative pay hits that number, both the 6.2% withholding and the employer match stop for the rest of the calendar year. The cap adjusts yearly based on the national average wage index.3Social Security Administration. Contribution and Benefit Base A worker who earns at or above the base contributes $11,439 in 2026, and the employer matches it.
Medicare has no wage cap. The 1.45% rate applies to every dollar of covered wages, regardless of total earnings.
Additional Medicare Tax
Workers whose earnings pass certain thresholds owe an extra 0.9% Medicare tax on the wages above those amounts. The thresholds vary by filing status:1Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax
- $250,000 for married couples filing jointly
- $200,000 for single filers and other statuses
- $125,000 for married individuals filing separately
Employers must start withholding the extra 0.9% once they pay an individual more than $200,000 in a calendar year, regardless of that person’s filing status. Any difference gets reconciled on the employee’s personal return. There is no employer match on this additional tax.4Internal Revenue Service. Topic No. 751 – Social Security and Medicare Withholding Rates
Federal and State Unemployment Taxes
Unemployment insurance is funded almost entirely by employers. The federal layer, under the Federal Unemployment Tax Act, applies at 6% of the first $7,000 in wages paid to each employee per year.5Office of the Law Revision Counsel. 26 USC 3301 – Rate of Tax6Office of the Law Revision Counsel. 26 USC 3306 – Definitions That $7,000 wage base has not changed since 1983. Employers who pay their state unemployment taxes on time qualify for a credit of up to 5.4%, dropping the effective FUTA rate to 0.6%, or a maximum of $42 per employee per year.7Office of the Law Revision Counsel. 26 USC 3302 – Credits Against Tax
State unemployment tax (often called SUTA) sits on top of FUTA. Rates depend on the employer’s experience rating, which reflects how many former workers have filed unemployment claims against the business. High turnover pushes the rate up. State taxable wage bases also vary widely, ranging from the federal floor of $7,000 to over $78,000 in some states. Neither FUTA nor SUTA is withheld from paychecks; the employer pays both from its own funds.
Self-Employment Tax
People who work for themselves have no employer to split FICA with, so they pay both halves. The self-employment tax rate is 15.3%: 12.4% for Social Security up to the $184,500 wage base, plus 2.9% for Medicare with no cap.3Social Security Administration. Contribution and Benefit Base The Additional Medicare Tax of 0.9% applies once net self-employment income crosses the same filing-status thresholds that apply to employees.
If your net earnings from self-employment reach $400 or more for the year, you must file Schedule SE with your tax return and pay the tax.8Internal Revenue Service. Instructions for Schedule SE (Form 1040) You can deduct the employer-equivalent portion, meaning half of the self-employment tax, when calculating your adjusted gross income. That deduction lowers your income tax but does not reduce the self-employment tax itself.9Internal Revenue Service. Topic No. 554 – Self-Employment Tax
Who Pays What
Payroll tax is not a single line item. Employees see their 6.2% Social Security, 1.45% Medicare, and any additional 0.9% withheld from each paycheck. Employers pay their matching 6.2% and 1.45% from business funds and cover FUTA and SUTA entirely on their own. Self-employed workers cover both halves through a separate calculation on their annual return. Federal income tax withholding runs alongside payroll tax on the same pay cycle but is a distinct tax with its own rules.
How Employers Report and Deposit Payroll Taxes
Most employers report FICA and income tax withholding on Form 941 each quarter. The form lists total wages, employee count, and the withheld and employer-matched amounts for the period. Quarterly deadlines fall on the last day of the month after each quarter closes: April 30, July 31, October 31, and January 31.10Internal Revenue Service. Instructions for Form 941 (Rev. March 2026)
FUTA is reported annually on Form 940. The form totals each employee’s wages up to the $7,000 FUTA limit and calculates federal unemployment liability after the state tax credit. The standard deadline is January 31 of the following year, extended by ten days if the employer deposited all FUTA tax on time.11Internal Revenue Service. About Form 940 – Employers Annual Federal Unemployment (FUTA) Tax Return12Internal Revenue Service. Instructions for Form 940 (2025)
Deposits go through the Electronic Federal Tax Payment System (EFTPS), a free Treasury platform for federal tax payments.13Internal Revenue Service. EFTPS – The Electronic Federal Tax Payment System The IRS assigns each employer either a monthly or semiweekly deposit schedule based on a lookback period. If you reported $50,000 or less in total employment taxes during the four quarters ending June 30 of the prior year, you deposit monthly, by the 15th of the following month. If you reported more than $50,000, you follow a semiweekly schedule with deposits due within a few days of each payday.14Internal Revenue Service. Publication 15 (2026), (Circular E), Employers Tax Guide The deposit schedule governs only when money moves to the IRS. It is not the same as how often you run payroll, and it is not the same as when you file returns.
Late Deposit and Filing Penalties
Late payroll tax deposits carry escalating penalties based on how far past due the payment is:15Internal Revenue Service. Failure to Deposit Penalty
- 1 to 5 calendar days late: 2% of the unpaid deposit
- 6 to 15 calendar days late: 5%
- More than 15 calendar days late: 10%
- More than 10 days after the first IRS notice, or upon a demand for immediate payment: 15%
The tiers do not stack. A deposit 20 days late owes 10%, not 2% plus 5% plus 10%. Filing Form 941 late is a separate penalty: 5% of the unpaid tax for each month or partial month the return is overdue, capped at 25%.16Internal Revenue Service. Failure to File Penalty Because deposit and filing penalties are independent, a business that misses both can face them at once.
Personal Liability for Withheld Taxes
The income tax, Social Security, and Medicare amounts withheld from employees’ paychecks are called “trust fund” taxes because the employer holds them in trust for the government. If those amounts are not paid over, liability reaches beyond the business. Under 26 U.S.C. § 6672, any responsible person who willfully fails to collect or pay over trust fund taxes is personally liable for a penalty equal to the full amount of unpaid tax.17Office of the Law Revision Counsel. 26 USC 6672 – Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax
A “responsible person” is anyone with authority to decide which creditors get paid. That can include corporate officers, partners, bookkeepers who sign checks, and volunteer board members of nonprofits.14Internal Revenue Service. Publication 15 (2026), (Circular E), Employers Tax Guide “Willfully” does not require intent to defraud. Knowingly using payroll tax funds to pay other business expenses while the taxes remain outstanding is enough. The IRS can pursue multiple responsible persons for the same liability, and the penalty often survives bankruptcy.