Who Pays Payroll Taxes? Employers, Employees, Self-Employed

Payroll taxes are paid by both employers and employees, with a few taxes falling on only one side. Employers and employees each pay 6.2% for Social Security and 1.45% for Medicare on wages, a combined FICA rate of 15.3% split evenly down the middle.¹ On top of that split, employers alone pay federal and state unemployment taxes, employees alone cover federal income tax withholding and the Additional Medicare Tax on high wages, and self-employed workers pay both halves themselves.

What the Employer Pays

Three payroll taxes come out of company funds and never touch an employee’s paycheck.

The Employer Share of Social Security and Medicare

Your employer pays 6.2% of your wages toward Social Security and 1.45% toward Medicare under the Federal Insurance Contributions Act. For 2026, the Social Security portion applies only to the first $184,500 in wages per employee. Medicare has no wage cap.¹

Federal Unemployment Tax

Only the employer pays FUTA. The statutory rate is 6% on the first $7,000 of each worker’s annual wages.² Employers who pay their state unemployment taxes on time receive up to a 5.4% credit, dropping the effective federal rate to 0.6%, or a maximum of $42 per employee per year.³

That credit can shrink. When a state has borrowed from the federal government to pay unemployment benefits and hasn’t repaid the loan within two years, the IRS reduces the credit for employers in that state, starting at 0.3% and growing by 0.3% each additional year the debt is outstanding. Employers in California faced a 1.2% credit reduction for 2025.⁴ The affected states change year to year.

State Unemployment Tax

Every state runs its own unemployment insurance program, and in most states the employer pays the full cost. Rates depend on industry and on the company’s layoff history, and state taxable wage bases range from $7,000 to over $78,000. New businesses typically start at a default rate that adjusts over time based on former employees’ unemployment claims.

What Comes Out of Your Paycheck

Employees pay their own share of FICA, plus income tax withholding, plus an extra Medicare tax at higher incomes. The employer collects and remits these, but the money is yours.

Your Share of Social Security and Medicare

You pay the same 6.2% Social Security tax and 1.45% Medicare tax that your employer pays, deducted from each paycheck. The Social Security portion stops once your 2026 wages hit $184,500; Medicare continues with no cap.¹

Additional Medicare Tax

Higher earners owe an extra 0.9% Medicare tax on wages above a threshold set by filing status. The employer does not match this tax — the employee pays all of it.⁵ The thresholds:

Single or head of household: $200,000
Married filing jointly: $250,000
Married filing separately: $125,000

Your employer must start withholding the Additional Medicare Tax once your wages pass $200,000 in a calendar year, regardless of your filing status. If your actual threshold is different because you file jointly or separately, you reconcile the difference on your tax return.

Federal Income Tax Withholding

Federal income tax is entirely the employee’s tax. Your employer withholds it from each paycheck based on the filing status, dependents, and adjustments you report on Form W-4, using IRS tax tables.⁶ Many states and some localities withhold their own income taxes through the same process.

Tips

Tips of $20 or more in a month are subject to Social Security and Medicare withholding. You report them to your employer, who withholds the employee share of payroll taxes from your other wages. If your non-tip wages aren’t enough to cover the withholding, the employer stops being required to collect it, but you still owe the tax when you file.⁷

State Disability and Paid Leave

Around 18 states and territories require payroll deductions for disability insurance, paid family leave, or both. These are usually withheld from employee wages, though some states split the cost with the employer. Rates generally run from roughly 0.2% to 1.7% of wages depending on the state and program.

Self-Employed Workers Pay Both Sides

If you work for yourself as a sole proprietor, freelancer, or independent contractor, you pay both the employer and employee shares of Social Security and Medicare. That’s 12.4% for Social Security plus 2.9% for Medicare, or 15.3% total.⁸ You owe the tax once your net self-employment earnings reach $400 for the year.

The tax doesn’t hit your full net earnings. First you multiply net self-employment income by 92.35% to arrive at the taxable amount, a reduction that mirrors the fact that wage earners aren’t taxed on the employer’s share.⁹ The Social Security portion still caps at $184,500 in combined wages and self-employment income for 2026.¹ You can deduct half of your self-employment tax when calculating adjusted gross income, which reduces your income tax though not the self-employment tax itself. The 0.9% Additional Medicare Tax also applies to self-employment income above the filing-status thresholds.

Household Employers

Hiring someone to work in your home can make you a payroll taxpayer too. Once you pay a nanny, housekeeper, home health aide, or similar worker $3,000 or more in cash wages during 2026, you owe the employer’s 7.65% share of Social Security and Medicare taxes on those wages, and you must withhold the employee’s 7.65% share (or choose to pay it yourself).¹⁰

FUTA works on its own trigger. If you pay $1,000 or more in total cash wages to all household employees in any calendar quarter, you owe federal unemployment tax on the first $7,000 of each worker’s annual wages.¹⁰

Family relationships create exceptions. You don’t owe Social Security, Medicare, or FUTA on wages paid to your spouse, your child under 21, or, in most cases, your parent. Workers under 18 are also exempt from Social Security and Medicare withholding unless household work is their main occupation.¹⁰

Classification Decides Who Pays

Whether a worker is an employee or an independent contractor decides which side of the payroll tax framework applies. Employers owe FICA and FUTA only for employees. An independent contractor handles their own self-employment tax, and the hiring business files Form 1099 instead of W-2.

The IRS weighs three categories of evidence:¹¹

Behavioral control: does the company direct how, when, and where the work gets done?
Financial control: does the company control how the worker is paid, whether expenses are reimbursed, and who supplies the tools?
Type of relationship: are there written contracts, employee-type benefits, and is the work a key part of the company’s regular business?

If the IRS reclassifies a contractor as an employee, the business owes back employment taxes, penalties, and interest. Businesses that discover they’ve been misclassifying workers can apply for the Voluntary Classification Settlement Program by filing Form 8952, provided they’ve consistently filed 1099s for the workers, aren’t currently under IRS examination on the issue, and agree to treat the workers as employees going forward.¹²

1
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
2
Office of the Law Revision Counsel. 26 U.S. Code 3301 – Rate of Tax
3
Department of Labor – Office of Unemployment Insurance. Tax Fact Sheet
4
Internal Revenue Service. FUTA Credit Reduction
5
Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
6
Internal Revenue Service. About Form W-4, Employees Withholding Certificate
7
Internal Revenue Service. Publication 15 (2026), (Circular E), Employers Tax Guide
8
Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
9
Internal Revenue Service. Topic No. 554, Self-Employment Tax
10
Internal Revenue Service. Publication 926 (2026), Household Employers Tax Guide
11
Internal Revenue Service. Independent Contractor (Self-Employed) or Employee?
12
Internal Revenue Service. Instructions for Form 8952 – Application for Voluntary Classification Settlement Program (VCSP)