Employer-Side Payroll Taxes: FICA, FUTA, and Deposits

Employer payroll taxes are what a business owes the federal and state governments on top of every employee’s wages, separate from what gets withheld from the employee’s paycheck. For 2026, the federal share adds up to 7.65% for FICA (6.2% Social Security on wages up to $184,500, plus 1.45% Medicare on all wages) and a net 0.6% for federal unemployment on the first $7,000 per employee. State unemployment tax is on top of that and varies widely. These taxes fund Social Security, Medicare, and unemployment benefits, and they come out of the business’s pocket.

FICA: The Employer’s Share of Social Security and Medicare

The Federal Insurance Contributions Act creates the biggest employer payroll tax obligation. FICA has two parts, and the employer matches, dollar for dollar, what gets withheld from each employee.

Social Security: 6.2% up to $184,500

The employer pays 6.2% of each employee’s gross wages toward Social Security. The rate is set by statute and has been unchanged since 1990.1Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax The tax only applies up to an annual wage cap, which for 2026 is $184,500.2Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates Once an employee’s cumulative wages cross that threshold in the calendar year, both the employer and employee stop owing Social Security tax on the excess. The cap adjusts annually to track average wage growth.3Social Security Administration. What Is the Current Maximum Amount of Taxable Earnings for Social Security?

Cumulative wages matter more than they might seem. If a highly compensated employee hits $184,500 in September, every check for the rest of the year should reflect the reduced obligation. Overpaying and later claiming a credit is an avoidable headache.

Medicare: 1.45% With No Cap

The employer’s Medicare tax is 1.45% of all gross wages, with no cap.1Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax A $50,000-a-year employee and a $500,000-a-year executive both generate a 1.45% employer obligation on every dollar they earn.

An Additional Medicare Tax of 0.9% applies to employees whose wages exceed $200,000 in a calendar year, and employers must start withholding it once pay crosses that line, regardless of filing status.4Internal Revenue Service. Topic No. 560, Additional Medicare Tax The employer does not match this additional 0.9%. The employer’s own Medicare rate stays at 1.45% no matter how much the employee earns.5Internal Revenue Service. Questions and Answers for the Additional Medicare Tax

Federal Unemployment Tax

The Federal Unemployment Tax Act funds the administrative side of the unemployment insurance system. The entire FUTA tax falls on the employer. Nothing is withheld from the employee. The statutory rate is 6.0% on the first $7,000 of wages paid to each employee per calendar year.6Office of the Law Revision Counsel. 26 USC 3301 – Rate of Tax

In practice, almost no employer pays the full 6.0%. A credit of up to 5.4% is available to employers who pay their state unemployment taxes on time, which drops the effective federal rate to 0.6%.7Internal Revenue Service. Topic No. 759, Form 940, Employers Annual Federal Unemployment (FUTA) Tax Return At that rate, the maximum FUTA cost per employee is $42 a year.8U.S. Department of Labor. Unemployment Insurance Tax Topic

Credit Reductions in Borrowing States

The 5.4% credit can shrink if your state borrowed from the federal government to cover its unemployment trust fund and hasn’t repaid the loan. States carrying an outstanding balance for two or more consecutive January 1st dates trigger an automatic credit reduction for employers in that state. The Department of Labor publishes a list of potentially affected states each year, but the final determination doesn’t happen until November 10 of the tax year.9Employment & Training Administration (ETA) – U.S. Department of Labor. FUTA Credit Reductions If your state ends up on the list, you’ll owe 0.6% plus the credit reduction on the first $7,000 per employee.

Paying SUTA late can also cut your credit independent of any state loan issue. Pay state unemployment on time and the full 5.4% credit stays intact.

State Unemployment and Other State Charges

State unemployment tax, or SUTA, is the primary state-level payroll obligation for most businesses. Payments go to the state workforce agency, and staying current on them is what secures the federal FUTA credit.

SUTA rates vary widely. Each state assigns a rate based on an “experience rating,” which reflects how often former employees file unemployment claims against your business. High turnover or frequent layoffs push the rate up; a stable workforce keeps it down. New employers usually get a default rate until the state has enough claims history to calculate one.

Taxable wage bases vary too. The federal FUTA wage base is $7,000, but state wage bases range roughly from $7,000 to over $70,000 depending on the state. A higher wage base means SUTA applies to more of each employee’s earnings.

Some states add other employer contributions. Paid family leave and state disability insurance programs exist in a handful of states, and the cost is sometimes split between employer and employee. A few states charge a small workforce training or development tax. Local payroll taxes exist in certain cities and counties, though many of those fall on the employee rather than the employer.

Compensation That Isn’t Subject to Payroll Tax

Not every dollar you spend on an employee counts as taxable wages. Certain fringe benefits are excluded from FICA and FUTA, which reduces the payroll tax bill while still compensating your workforce. IRS Publication 15-B has the full list.10Internal Revenue Service. Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits Common exclusions include:

Anything above these thresholds becomes taxable wages. Transit benefits worth $400 a month, for example, trigger employer FICA on the $60 that exceeds the $340 limit.

Only Employee Wages Are Taxed

Every tax above hinges on one threshold question: is the worker an employee? If yes, you owe the employer share of FICA, FUTA, and SUTA on that person’s wages. If the worker is a legitimate independent contractor, you owe none of those taxes on what you pay them.

The IRS evaluates worker status using three categories of evidence: behavioral control (whether the business directs how the work is done), financial control (who controls the business aspects of the job, provides tools, and bears expenses), and the nature of the relationship (written contracts, permanence, and whether the work is a core business activity).12Internal Revenue Service. Worker Classification 101: Employee or Independent Contractor No single factor decides it.

Getting this wrong is costly. When an employer treats a worker as a contractor and the IRS later determines the person was really an employee, the employer becomes liable for unpaid FICA, FUTA, and income tax withholding for the affected periods. Federal law provides reduced assessment rates when misclassification wasn’t intentional. If the employer filed 1099s for the worker, the liability is calculated at 1.5% of wages for income tax withholding and 20% of the employee’s share of FICA, plus the full employer share of FICA. Without 1099s, those rates double to 3% and 40%.13Office of the Law Revision Counsel. 26 USC 3509 – Determination of Employer’s Liability for Certain Employment Taxes

Depositing Federal Payroll Taxes

The IRS requires employers to deposit FICA taxes and withheld federal income tax on a strict schedule. How often you deposit depends on your tax liability during a defined lookback period: the 12 months running from July 1 of the second preceding year through June 30 of the prior year.14Internal Revenue Service. Topic No. 757, Forms 941 and 944 – Deposit Requirements

Small employers get a break. If your total tax liability for the current or preceding quarter is under $2,500, you can skip deposits entirely and pay the full amount with your quarterly return.14Internal Revenue Service. Topic No. 757, Forms 941 and 944 – Deposit Requirements

All federal employment tax deposits must be made electronically. The IRS accepts electronic funds transfers through several channels, including the Electronic Federal Tax Payment System (EFTPS), Direct Pay for businesses, and your business tax account on IRS.gov. A financial institution or payroll service can also initiate the transfer on your behalf, though some options carry processing fees.16Internal Revenue Service. Depositing and Reporting Employment Taxes Paper checks are not accepted.

Late Deposit Penalties

The penalty structure for late deposits escalates quickly:

  • 1 to 5 days late: 2% of the unpaid deposit.
  • 6 to 15 days late: 5% of the unpaid deposit.
  • More than 15 days late: 10% of the unpaid deposit.
  • Still unpaid 10 days after the first IRS notice: 15% of the unpaid deposit.

Deposits not made by electronic funds transfer face a separate 10% penalty.17Internal Revenue Service. Internal Revenue Manual 20.1.4 – Failure to Deposit Penalty These penalties apply to each missed or late deposit individually, so a pattern of late payments compounds fast.

Reporting Requirements

Depositing on time is only half of compliance. Federal law also requires periodic reporting that reconciles what you owe with what you’ve paid.

Form 941 (Quarterly)

Most employers file Form 941 each quarter to report FICA taxes (both shares) and withheld federal income tax.18Internal Revenue Service. About Form 941, Employer’s Quarterly Federal Tax Return The form reconciles your total liability for the quarter against deposits already made. Due dates are April 30, July 31, October 31, and January 31 for the fourth quarter of the prior year. If you deposited all taxes on time during the quarter, you get an extra 10 calendar days to file.19Internal Revenue Service. Employment Tax Due Dates

The smallest employers, those whose total annual Social Security, Medicare, and withheld income tax is $1,000 or less, may qualify to file Form 944 once a year instead.20Internal Revenue Service. About Form 944, Employer’s Annual Federal Tax Return

Form 940 (Annual FUTA)

FUTA is reported separately on Form 940, which covers the full calendar year and is due January 31 of the following year. If your FUTA liability exceeds $500 in any quarter, you must deposit it by the end of the month following that quarter rather than waiting for the annual filing.21Internal Revenue Service. Form 940 – Employer’s Annual Federal Unemployment (FUTA) Tax Return If you deposited all FUTA on time, the filing deadline extends to February 10.22Internal Revenue Service. Instructions for Form 940

W-2s and Recordkeeping

By January 31 each year, employers must file W-2 forms with the Social Security Administration and provide copies to every employee paid during the prior year.23Social Security Administration. Deadline Dates to File W-2s State workforce agencies also require their own quarterly or annual reports to reconcile SUTA payments. Employment tax records must be kept for at least four years after the tax becomes due or is paid, whichever is later.24Internal Revenue Service. Recordkeeping

Personal Liability for the Trust Fund Portion

Payroll taxes differ from almost every other business obligation in one important way. The employee’s share of FICA and withheld income tax is “trust fund” money: the employer collects it on behalf of the government, and diverting it for other purposes creates personal exposure for whoever made the decision.

Under the Trust Fund Recovery Penalty, the IRS can assess a penalty equal to 100% of the unpaid trust fund taxes against any “responsible person” who willfully failed to remit them.25Internal Revenue Service. Trust Fund Recovery Penalty A responsible person can be a corporate officer, partner, sole proprietor, or a non-owner employee with authority over the business’s finances. “Willfully” does not require intent to break the law. Choosing to pay vendors or rent instead of payroll taxes is enough.

The employer’s own share of FICA and the FUTA tax stay with the business as ordinary business debts. The trust fund portion follows individuals personally, and corporate structures, LLCs, and partnerships do not shield responsible persons from that penalty. When cash gets tight, payroll taxes belong at the front of the line.