You know that you’re responsible for managing payroll for your employees. You’re also likely familiar with payroll withholdings, including taxes and non-tax deductions. But, what about your employer payroll liabilities? Do you know what the payroll taxes paid by employer are?
To stay compliant with the IRS and Department of Labor, you need to know what is the employer portion of payroll taxes. Withholding the employer portion of payroll taxes from your employees’ wages is illegal. And, failing to pay your employer tax liability can lead to IRS penalties.
So, are you ready to dive into your employer payroll tax responsibility?
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Employee and employer paid taxes: Complete list
Payroll taxes are mandatory contributions that both employees and employers make. There are several payroll-related taxes, including Social Security tax and federal income tax.
There are both employee taxes paid by employer as well as taxes paid by employees. And, there are taxes that both employees and employers pay.
Take a look at our chart, splitting out each tax and defining who pays:
| Tax | Who Pays? |
|---|---|
| Federal income tax | Employee |
| State income tax | Employee |
| Local income tax | Employee |
| Social Security tax | Employer and employee |
| Medicare tax | Employer and employee |
| Federal unemployment tax | Employer |
| State unemployment tax | Employer (and employee in AK, NJ, and PA) |
| State-specific taxes (e.g., Oregon transit tax) | Varies |
Payroll taxes paid by employer
The taxes paid by employer on behalf of employees can add up. Employer payroll taxes are a big reason why an employee can cost 1.25 – 1.4 times their salary.
Which payroll taxes are paid by employers? Let’s take a closer look:
- Social Security tax (shared between employers and employees)
- Medicare tax (shared between employers and employees)
- Federal unemployment tax (employer only)
- State unemployment tax (employer only in most states)
What about income taxes? Do employers pay income tax for employees? No, employers do not pay income taxes for their employees. Employees are solely responsible for income tax payments, which employers must withhold.
Now that you know which taxes are your responsibilities, you might be wondering, OK, so how much payroll tax do employers pay? That answer depends. Your payroll tax liability varies based on the number of employees you have, how much you pay those employees, and where your business is located.
| Did You Know? |
|---|
| Your employer payroll tax liability depends on the number of employees you have, how much you pay those employees, and your business location. |
If you want to know how much your payroll tax liability is, familiarize yourself with how to calculate payroll taxes for the employer share below.
Social Security tax
Both employers and employees pay Social Security tax. So, what percentage of payroll taxes is paid by employer for Social Security?
Employers must pay a flat rate of 6.2% of each employee’s wages for Social Security tax. Employees pay a matching 6.2%.
Stop paying the 6.2% Social Security tax rate if an employee earns above the Social Security wage base. Likewise, stop withholding the employee’s portion when they earn above this threshold.
Let’s say an employee’s biweekly pay is $2,000. They don’t have any pre-tax deductions that are exempt from Social Security tax. To calculate your employer SS tax liability, multiply $2,000 by 6.2%. You must pay $124 for the employer portion of Social Security tax (and withhold $124 for the employee portion).
Medicare tax
Medicare tax is another out-of-pocket payroll tax employers share with employees. The Medicare tax rate is 1.45% of each employee’s wages. Employees also pay 1.45% on their wages.
Unlike Social Security tax, there is no Medicare wage base. There’s actually an additional Medicare tax that employees are responsible for after the employee earns a certain amount, but this does not affect your employer liability. Employers always pay 1.45% of an employee’s wages.
Say an employee’s biweekly gross pay is $2,000 again. Multiply $2,000 by 1.45% to determine how much you will pay. Your employer liability is $29 (and withhold $29 from employee wages for their portion).
FUTA tax
FUTA (Federal Unemployment Tax Act) tax is an employer-only tax. Unlike Social Security and Medicare taxes, you do not withhold a portion of FUTA tax from employee wages.
Your federal unemployment tax rate depends on your state. FUTA tax is 6% of the first $7,000 you pay each employee during the year. But, most employers receive a FUTA tax credit that lowers their FUTA tax rate to 0.6% on the first $7,000 employees earn. Your tax rate is 0.6% unless your business is in a credit reduction state.
If your FUTA tax rate is 6%, the maximum amount you’ll pay per employee is $420 ($7,000 X 0.06). If your FUTA tax rate is 0.6%, the maximum amount you’ll pay per employee is $42.
SUTA tax
SUTA (State Unemployment Tax Act) tax is another employer-only tax. However, employees are responsible for contributing to SUTA tax payments in Alaska, New Jersey, and Pennsylvania.
This type of unemployment insurance tax goes to the state. Each state sets a different SUTA tax rate, in case you’re wondering What is my state unemployment tax rate? There is also a SUTA tax wage base that varies by state.
How much payroll tax do employers pay?
Use our handy chart below to help you determine your payroll tax liability:
| Tax | How Much Payroll Tax Do Employers Pay? |
|---|---|
| Social Security tax | 6.2% (on wages up to the Social Security wage base) |
| Medicare tax | 1.45% |
| FUTA tax | 0.6% – 6% (on the first $7,000 you pay each employee) |
| SUTA tax | Rate and taxable wages base vary by state |
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This article has been updated from its original publication date of February 19, 2020.
This is not intended as legal advice; for more information, please click here.
