Payroll taxes are a significant responsibility for employers, as they fund crucial government programs such as Social Security, Medicare, and unemployment benefits. Understanding which payroll taxes are employer-paid ensures compliance with federal and state regulations while avoiding costly penalties.
In this article, we’ll break down the payroll taxes that employers must pay, their rates, and how they impact businesses.
Payroll Taxes That Employers Must Pay
Employers are responsible for several payroll taxes at the federal and state levels. Below is a breakdown of the key taxes paid by employers:
1. Federal Insurance Contributions Act (FICA) Taxes
FICA taxes fund Social Security and Medicare programs. These taxes are split between employers and employees, but employers must contribute an equal share.
Social Security Tax
● Employer Contribution Rate: 6.2% of employee wages
● Wage Base Limit (2024): $168,600 (wages above this amount are not subject to Social Security tax)
Medicare Tax
● Employer Contribution Rate: 1.45% of employee wages
● Additional Medicare Tax: Employers do not pay the additional 0.9% Medicare tax, but they must withhold it from employees earning above $200,000 per year.
2. Federal Unemployment Tax Act (FUTA) Tax
FUTA taxes fund unemployment benefits for workers who lose their jobs.
● Employer Contribution Rate: 6.0% on the first $7,000 of each employee’s wages
● Effective Rate After Credits: Typically reduced to 0.6% if the employer qualifies for state unemployment tax credits.
● Employees Do Not Pay FUTA: Unlike FICA taxes, FUTA is solely paid by employers.
3. State Unemployment Tax (SUTA) or State Unemployment Insurance (SUI)
Each state sets its own SUTA tax rates and wage base limits.
● Employer Contribution Rate: Varies by state and employer experience rating.
● Wage Base Limit: Typically ranges from $7,000 to $56,700, depending on the state.
● Some States Require Employee Contributions: A few states, like New Jersey and Pennsylvania, require employees to contribute to SUTA as well.
4. Workers’ Compensation Insurance
While not technically a payroll tax, workers’ compensation insurance is a mandatory cost for most employers.
● Employer Responsibility: Fully employer-paid in most states.
● Cost: Varies based on industry risk and employee wages.
5. State and Local Payroll Taxes
Some states and local governments impose additional payroll taxes on employers:
● Disability Insurance (SDI): Required in states like California, New York, and Rhode Island.
● Paid Family Leave (PFL): Some states mandate employer contributions to paid leave programs.
● Local Payroll Taxes: Cities such as New York and San Francisco impose additional employer-paid payroll taxes.
Additional Employer Tax Responsibilities
Besides payroll taxes, employers must also handle:
1. Workers’ Compensation Insurance – Required in most states to cover work-related injuries.
2. Employer Contributions to Retirement Plans – 401(k) matching (if offered).
3. Paid Family Leave Contributions – Required in some states (e.g., California, New York, and Washington).
Payroll Taxes That Employees Pay (Withheld by Employers)
Employers are also responsible for withholding and remitting the following employee-paid taxes:
● Employee Share of Social Security (6.2%)
● Employee Share of Medicare (1.45% + 0.9% for high earners)
● Federal and State Income Taxes (varies by income level and state)
Payroll Tax Payment & Reporting Requirements
Employers must deposit payroll taxes and file reports regularly:
● Federal tax deposits (Social Security, Medicare, FUTA) are made monthly or semi-weekly via the Electronic Federal Tax Payment System (EFTPS).
● IRS Form 941 (Quarterly) reports federal income tax, Social Security, and Medicare tax.
● IRS Form 940 (Annual) reports FUTA tax.
● State tax filings vary by jurisdiction.
How Employers Can Manage Payroll Tax Compliance
Managing payroll taxes can be complex, but the following best practices can help employers stay compliant:
● Use a Payroll Provider: Services like Gusto, ADP, or QuickBooks Payroll automate tax calculations and filings.
● Stay Updated on Tax Law Changes: Payroll tax rates and regulations change annually.
● File Taxes on Time: Missing payroll tax deadlines can result in heavy penalties.
● Work with Payroll Experts: Partner with us to ensure compliance and efficiency.
Conclusion
Employers must pay several payroll taxes, including FICA, FUTA, and SUTA taxes, to support government programs and employee benefits. Understanding these obligations helps businesses avoid penalties and maintain compliance with federal and state regulations.
