What are employer payroll taxes?

Employer payroll taxes are taxes paid by employers based on their employees’ wages or salaries. These taxes are separate from the income taxes withheld from employees’ paychecks and are used to fund various government programs and benefits. 

Employer payroll taxes include:

  • Federal Insurance Contributions Act (FICA) Taxes: These taxes fund Social Security and Medicare programs. Employers and employees each contribute a portion of FICA taxes.
  • Federal Unemployment Tax Act (FUTA) Tax: This tax funds unemployment benefits for workers who lose their jobs. Employers pay FUTA tax on the first $7,000 of each employee’s wages.
  • State Unemployment Tax Act (SUTA) Tax: Similar to FUTA tax, SUTA tax funds state unemployment benefits. Employers pay SUTA tax to their state unemployment insurance program.
  • State and Local Payroll Taxes: Some states and localities impose additional payroll taxes on employers to fund state and local programs, such as disability insurance, family leave, or healthcare.
  • Additional Taxes and Contributions: Depending on the jurisdiction and industry, employers may be subject to other payroll taxes or contributions, such as workers’ compensation insurance.

Employers are responsible for withholding and remitting these taxes to the appropriate government agencies on behalf of their employees. Failure to comply with payroll tax obligations can result in penalties and interest charges.

Why do employers have to pay payroll taxes?

Employers must pay payroll taxes to fund essential government programs, including Social Security, Medicare, and unemployment insurance. These taxes provide workers with retirement, healthcare, and financial assistance benefits. 

Federal and state laws mandate payroll taxes, ensuring compliance and financial stability for these programs. Employers share responsibility with employees for funding these programs, contributing to their employees’ overall compensation, and supporting the broader social safety net.

How are employer payroll taxes calculated?

Employer payroll taxes are calculated based on the employee’s wages or salary. The rate at which these taxes are applied varies depending on the specific tax and the employee’s income. 

Federal Insurance Contributions Act (FICA) Taxes

Employers and employees each contribute 6.2% of wages, up to a certain income threshold, to the Social Security Tax. They must each also contribute 1.45% of wages, with an additional 0.9% for high-income earners, to the Medicare Tax. 

Federal Unemployment Tax Act (FUTA) Tax

Employers pay a flat rate of 6% on the first $7,000 of each employee’s wages.

State Unemployment Tax Act (SUTA) Tax

State-specific rates and wage bases apply, with employers typically paying a percentage of each employee’s wages up to a specific limit.

What are some common employer payroll taxes?

Some of the most common employer payroll taxes include federal income tax, Social Security tax, Medicare tax, and state unemployment insurance tax. These taxes may vary depending on the location and industry of the employer.

Back to top