Which Payroll Taxes Are Paid by Employers? A Quick, Comprehensive Guide

Employers have a lot on their plates, from product planning and management, hiring and firing, to dealing with payroll and the associated taxes. Managing payroll can be a challenging process, involving a web of complex legal, tax, and accounting terminology.

In this article, we demystify the world of employer payroll taxes, including terms, formulas, and more, as well as suggest some of the best payroll software options for your business.

Key Takeaways

  • The three main types of employer payroll taxes are FICA, FUTA, and SUTA.
  • FICA is paid by both the employer and the employee, and each pays 50%.
  • Payroll taxes fund various federal and state social programs, like Social Security, Medicare, and unemployment insurance.

Payroll Taxes Paid by Employers

Let’s look at what payroll taxes are paid by employers and the amount they’re required to pay. We’ll also walk through easy-to-use formulas for each type of payroll tax.

FICA Taxes

FICA or the Federal Insurance Contributions Act, is made up of two different taxes: Social Security tax and Medicare tax. FICA taxes are paid by both the employer and the employee, and each pays 50%. Generally, the employer withholds the employee portion from their paycheck and pays it to the IRS each quarter on their behalf.

  • Social Security tax: This tax is used to fund the Social Security program, which makes payments to retired individuals to help subsidize their living expenses. The total Social Security tax rate is 12.4%, and the employer and employee each pay half, which equals 6.2% each. The income limit for this tax is $168,600 in 2024, and it changes every year to account for inflation and cost of living increases.

The Social Security tax is calculated as follows:

Employee Income up to $168,600 × 6.2% = Employer and Employee Portions of Social Security Tax

  • Medicare tax: Medicare tax funds the Medicare program, which provides retired individuals with partially or fully subsidized healthcare plans. The total Medicare tax rate is 2.9%, and the employer and employee each pay half, which equals 1.45% each. There’s no income limit on Medicare taxes.

The Medicare tax is calculated as follows:

Employee Income × 1.45% = Employer and Employee Portions of Medicare Tax

FUTA Tax

FUTA or the Federal Unemployment Tax Act, funds the federal unemployment program, which makes payments to workers who have lost their jobs. The FUTA tax is paid entirely by the employer, and none of it is withheld from employees’ paychecks.

The FUTA tax rate is 6%, but federal credits decrease the rate to 0.6% for employees in most states (according to the DOL, California, Connecticut, and New York will potentially pay 0.15% in 2024). The FUTA tax is only calculated on the first $7,000 of each employee’s income, so it maxes out at $42 per employee in most states, and $105 per employee in CA, CT, and NY.

The FUTA tax is calculated as follows:

Employee Income up to $7,000 × 0.6% (most states) = FUTA Tax Due

SUTA Tax

SUTA or the State Unemployment Tax Act, funds various state unemployment programs. SUTA is also referred to as SUI or State Unemployment Insurance. Almost all states use some form of SUTA, so employers should expect to pay this tax.

Employers are responsible for paying the SUTA tax, and they shouldn’t withhold this tax from employees’ paychecks. Each state charges its own SUTA tax rate, and some states have income limits, so make sure you check with your state’s taxing authority before making payments.

The SUTA tax is calculated as follows:

Employee Income (up to the state limit, if applicable) × Tax Rate = SUTA Tax Due

When and How To Pay Payroll Taxes

Some payroll taxes — like FICA — are reported to the IRS quarterly, while others — like FUTA — are reported annually.

FICA taxes are reported to the IRS using Form 941. This form is submitted quarterly, in the month following the end of each calendar quarter. FUTA taxes, on the other hand, are reported to the IRS using Form 940, and this form is submitted annually, by January 31st of the year following the reporting year.

Taxes can either be paid online using the government’s Electronic Federal Tax Payment System (EFTPS) or by filling out and mailing a check with the payment vouchers—either Form 941-V or Form 940-V—which are included with their respective tax forms. For more in-depth guidance, check out our beginner’s guide to payroll taxes.

If the payroll tax seems overly complicated, then payroll software programs such as QuickBooks, Gusto, Rippling, and OnPay can help streamline the process. Features include tracking salaries and wages, calculating payroll taxes on your behalf, and even helping prepare payroll tax forms (depending on the software). To find out more, check out our list of the best payroll software for 2024.

Conclusion

While managing payroll taxes alongside all your other responsibilities can seem like a complicated and time-consuming task, this article simplifies the process and gives you the tools you need to submit payroll taxes easily.

We learned what payroll taxes are, how to calculate them for your employees, and how (and when) to file the appropriate payroll tax forms. Follow the steps above and you’ll be a payroll tax master in no time.

FAQs

What is the employer portion of payroll taxes in 2024?

What happens if I don’t pay my payroll taxes?

References

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Robbie Mizzone
Editor

Robbie holds a BSc in Accounting and Finance from Centenary University, New Jersey. He's worked for banks and private companies alike, including Kering (Gucci, Balenciaga), focusing on financial reporting, account reconciliation, and complex accrual analysis. An avid explorer and jack of all trades, Robbie's garnered experience in luxury hospitality, carpentry and construction, and is now backpacking solo around the world.