Employers in the United States pay several payroll taxes on top of wages. The employer’s share of Social Security and Medicare (FICA) adds 7.65% to each paycheck, split into 6.2% for Social Security on wages up to $184,500 in 2026 and 1.45% for Medicare with no wage cap. Federal unemployment tax (FUTA) adds up to 6.0% on the first $7,000 per employee, though most employers pay an effective 0.6% after state credits. State unemployment tax (SUTA) is set by each state based on the employer’s claims history, and some cities and regional authorities layer on their own payroll assessments. Employers also withhold federal income tax and the employee’s share of FICA from each paycheck and remit both to the IRS, and while that money technically comes from the worker, the legal duty to calculate, withhold, and deposit it sits with the employer.
Social Security and Medicare (FICA) Match
The Federal Insurance Contributions Act requires the employer to match the Social Security and Medicare taxes withheld from the employee. That match funds retirement, disability, and hospital insurance benefits.
Social Security: 6.2% Up to the Wage Cap
The employer pays 6.2% of each employee’s gross wages toward Social Security.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates In 2026 the tax applies only to the first $184,500 an employee earns during the calendar year. Once wages exceed that cap, the 6.2% stops for the rest of the year for that worker. At the maximum, an employer contributes $11,439 per employee toward Social Security in 2026.2Social Security Administration. Contribution and Benefit Base
Medicare: 1.45% on Every Dollar
Employers pay 1.45% of all employee wages toward Medicare.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates There is no wage cap. The 1.45% applies to every dollar an employee earns no matter how high the salary.
An Additional Medicare Tax of 0.9% kicks in once an employee’s wages with a single employer exceed $200,000 in a calendar year. Employers do not match this additional portion, but they must withhold it from the employee’s pay once the $200,000 threshold is crossed.3Internal Revenue Service. Questions and Answers for the Additional Medicare Tax The trigger applies per employer, regardless of the employee’s filing status or wages earned elsewhere.
Federal Unemployment Tax (FUTA)
FUTA funds federal unemployment programs and is paid entirely by the employer. Employees never see a FUTA deduction. The statutory rate is 6.0% on the first $7,000 each employee earns per year, so the maximum federal liability is $420 per worker before credits.4Employment & Training Administration – U.S. Department of Labor. Unemployment Insurance Tax Topic
Most employers pay far less. Businesses that participate in their state’s unemployment insurance program and pay their state taxes on time receive a credit of up to 5.4% against the federal rate, dropping the effective FUTA cost to 0.6%, or $42 per employee per year.4Employment & Training Administration – U.S. Department of Labor. Unemployment Insurance Tax Topic
One exception: employers in states with outstanding loans from the federal unemployment trust fund may face a FUTA credit reduction. The 5.4% credit shrinks and the effective FUTA rate rises.5Internal Revenue Service. FUTA Credit Reduction The IRS publishes the list of affected states each year. FUTA is reported and paid annually on Form 940.
State Unemployment Tax (SUTA)
Every state runs its own unemployment insurance program funded through employer payroll taxes. Each business is assigned a rate based mostly on its history of unemployment claims, called an experience rating. An employer that frequently lays off workers typically faces a higher rate than one with a stable workforce.
New businesses with no claims history start at a default “new employer” rate set by the state, generally somewhere around 1% to 4% depending on the state and industry. The rate adjusts up or down over time as the employer builds a claims record.
SUTA taxable wage bases vary widely. Some states tax only the first $7,000 per employee, matching the federal FUTA base. Others apply the tax to wages up to roughly $60,000 or more per employee. Because rates and wage bases differ so much, the actual cost per employee ranges from a few dozen dollars to several thousand dollars a year. Your state’s workforce or labor agency publishes the current rate schedule and wage base.
Local and Regional Payroll Taxes
Some cities and regional authorities impose payroll taxes on top of federal and state obligations. Common examples include occupational privilege taxes (sometimes called “head taxes”) based on the number of workers employed, transit taxes funding public transportation, and employer-paid assessments for programs like workforce training or disability insurance.
Not every jurisdiction has one. Employers operating where such taxes exist have to track them separately, since missing a local assessment can lead to back taxes, interest, and penalties from the local collector. Your city or county revenue department can confirm what applies at your address.
Federal Income Tax Withholding
Federal law requires every employer to withhold federal income tax from wages and remit it to the IRS.6Office of the Law Revision Counsel. 26 U.S. Code 3402 – Income Tax Collected at Source This money comes out of the employee’s pay, not the employer’s pocket, but the employer bears legal responsibility for calculating, withholding, and depositing the correct amount. The amount withheld depends on the information the employee provides on Form W-4, including filing status, dependents, and any additional withholding requested.7Internal Revenue Service. Tax Withholding for Individuals Employers report withholding quarterly on Form 941 alongside their FICA obligations.
Independent Contractors Are Different
All of the taxes above apply only to workers classified as employees. If a business pays independent contractors, it generally owes no payroll taxes on those payments. That creates a financial incentive to classify workers as contractors, and getting the classification wrong carries serious consequences, including back taxes, penalties, and interest on all the payroll taxes that should have been paid.
The IRS weighs three categories of evidence to decide whether a worker is an employee or an independent contractor:8Internal Revenue Service. Independent Contractor (Self-Employed) or Employee?
- Behavioral control: does the company control how the worker performs the job, or only the result?
- Financial control: does the company control how the worker is paid, whether expenses are reimbursed, and who provides tools and supplies?
- Type of relationship: are there written contracts, employee-type benefits (insurance, pension, vacation), and is the work a key part of the company’s regular business?
No single factor decides it. If you’re uncertain, either you or the worker can file Form SS-8 to request an official determination.9Internal Revenue Service. About Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding
What Happens If You Get It Wrong
The IRS treats payroll tax obligations seriously, and penalties escalate quickly.
Late Deposits
Missing a deposit deadline triggers a penalty as a percentage of the unpaid amount, rising with time:10Internal Revenue Service. Failure to Deposit Penalty
- 1 to 5 days late: 2%
- 6 to 15 days late: 5%
- More than 15 days late: 10%
- More than 10 days after the first IRS notice, or upon a demand for immediate payment: 15%
The tiers replace each other rather than stacking. A deposit 20 days late owes 10%, not 2% plus 5% plus 10%.10Internal Revenue Service. Failure to Deposit Penalty
Late Filing
Filing Form 941 or another employment tax return late brings a separate penalty of 5% of the unpaid tax for each month or partial month the return is late, capped at 25%.11Internal Revenue Service. Failure to File Penalty
Trust Fund Recovery Penalty
The harshest consequence hits when withheld taxes (federal income tax and the employee’s share of Social Security and Medicare) are not turned over to the IRS. Those amounts are called “trust fund” taxes because the employer holds them in trust for the government. If a responsible person willfully fails to pay them, the IRS can assess the Trust Fund Recovery Penalty at 100% of the unpaid trust fund taxes.12Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty (TFRP)
A “responsible person” is anyone with authority to decide which bills get paid: officers, directors, shareholders with control over funds, and sometimes employees with check-signing authority. “Willfully” does not require bad intent. It’s enough that the person knew taxes were owed and chose to pay other creditors first.12Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty (TFRP) The penalty is assessed against the individual personally, so it can pierce the liability protection of a corporation or LLC.