FICA and FUTA are both federal payroll taxes, but they fund different programs and hit employers very differently. FICA covers Social Security and Medicare, splits evenly between employer and employee, and runs 15.3% combined on wages up to $184,500 in 2026 (with Medicare continuing above that cap). FUTA funds unemployment insurance, is paid entirely by the employer, and carries an effective rate of just 0.6% on the first $7,000 of each employee’s wages once the standard state credit applies.
What Each Tax Funds and Who Pays
FICA pays for two programs: Social Security (Old-Age, Survivors, and Disability Insurance) and Medicare (Hospital Insurance). Employer and employee each contribute the same amount to both.1Internal Revenue Service. Exempt Organizations: What Are Employment Taxes?
FUTA funds the federal-state unemployment insurance system. Nothing comes out of the employee’s paycheck. The employer owes the full amount.1Internal Revenue Service. Exempt Organizations: What Are Employment Taxes?
That split is the first thing to keep straight. When a paycheck shows Social Security and Medicare withholding, that’s the employee’s half of FICA. The employer is quietly paying the same amount alongside it. FUTA never appears on the paystub at all.
2026 Rates and Wage Bases
The FICA breakdown is 6.2% each side for Social Security and 1.45% each side for Medicare. That’s 7.65% per side, 15.3% total.2Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
Social Security has an annual wage cap that adjusts for inflation. For 2026 it’s $184,500. Past that point, neither side owes any more Social Security tax on that employee for the year. Medicare has no cap and applies to every dollar of wages.3Social Security Administration. Contribution and Benefit Base
FUTA’s statutory rate is 6.0% on the first $7,000 of wages per employee per year.4Internal Revenue Service. FUTA Credit Reduction Employers who pay state unemployment insurance on time get a credit of up to 5.4%, dropping the effective federal rate to 0.6%. That’s a maximum of $42 per employee for the whole year.5Office of the Law Revision Counsel. 26 USC 3301 – Rate of Tax
The gap is worth spelling out. An employee earning $184,500 generates $11,439 in Social Security tax from the employer alone, plus Medicare on top. FUTA for that same employee: $42. A workforce of 50 tops out around $2,100 in federal unemployment tax, while the FICA bill for the same payroll can run past $500,000.
The Additional Medicare Tax
Wages above $200,000 (single filers) or $250,000 (married filing jointly) carry an extra 0.9% Medicare surtax. Only the employee owes it; there’s no employer match. The employer withholds it once wages paid to any one employee cross $200,000 in a calendar year, regardless of that employee’s filing status or what other employers may have withheld.6Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
The trap: withholding is per employer, but liability is based on total household income. Two spouses each earning $150,000 will see nothing withheld, and still owe the additional tax on their joint return once their combined wages clear $250,000.6Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
Why FUTA Is Rarely 6.0%
The 5.4% credit isn’t automatic in every state. When a state borrows from the federal government to pay unemployment benefits and doesn’t repay within two years, the IRS trims the credit available to employers there. That raises the effective FUTA rate until the state’s debt is cleared.4Internal Revenue Service. FUTA Credit Reduction
The list is finalized each November for the current tax year. For 2025, California and the U.S. Virgin Islands were subject to credit reductions, so employers there paid more than the standard 0.6%.7Employment & Training Administration – U.S. Department of Labor. FUTA Credit Reductions The 2026 list won’t be set until November 2026.
Also worth separating: state unemployment insurance (SUI) is its own obligation paid to the state, not part of FUTA. SUI rates vary widely by state, industry, and layoff history, and state taxable wage bases run from $7,000 up past $70,000. Paying SUI on time is what unlocks the federal credit.
Self-Employment Income
Self-employed people pay both halves of FICA through the self-employment tax: 15.3% total, split as 12.4% Social Security on net earnings up to $184,500 and 2.9% Medicare on all net earnings. You can deduct half of what you pay when calculating adjusted gross income, mirroring the fact that a W-2 employee never has the employer’s share included in taxable wages.8Internal Revenue Service. Topic No. 554, Self-Employment Tax
The 0.9% Additional Medicare Tax applies to self-employment income above the same thresholds. FUTA does not apply to self-employment income at all. It only covers wages paid to employees.
Workers Exempt From One or Both
Exemptions don’t always line up between FICA and FUTA, which is where family businesses in particular need to look carefully.
A child working for a parent’s sole proprietorship (or a partnership where both partners are the child’s parents) is exempt from Social Security and Medicare taxes until age 18, and exempt from FUTA until age 21. For domestic work in the parent’s home, both exemptions run to age 21. Incorporate the business, or bring in a non-parent partner, and the exemptions disappear.9Internal Revenue Service. Family Employees
A parent working for their child’s sole proprietorship is exempt from FUTA regardless of age, with the same caveat about business structure.9Internal Revenue Service. Family Employees
Students working for the school where they’re enrolled and regularly attending classes may be exempt from FICA under a longstanding exception. The work has to connect to their course of study, and the student can’t qualify as a “professional employee” eligible for benefits like retirement plans, paid leave, or employer-sponsored insurance.10Internal Revenue Service. Student FICA Exception
Statutory employees (full-time life insurance agents, certain delivery drivers, home workers, and traveling salespeople who meet specific conditions) have FICA withheld but not federal income tax. FUTA treatment depends on the category and is spelled out in IRS Publication 15-A.11Internal Revenue Service. Statutory Employees
Filing and Deposits
FICA and FUTA use entirely different forms and timelines.
FICA (plus federal income tax withholding) goes on Form 941, filed quarterly.12Internal Revenue Service. About Form 941, Employer’s Quarterly Federal Tax Return The form reconciles what you owe against what you’ve already deposited, and deposits happen far more often than quarterly. If your total employment taxes during a lookback period were $50,000 or less, you deposit monthly (by the 15th of the following month). Above $50,000, you deposit semi-weekly on a schedule tied to your paydays. The lookback period runs from July 1 two years back through June 30 of the prior year.13Internal Revenue Service. Topic No. 757, Forms 941 and 944 – Deposit Requirements All deposits must be made electronically through EFTPS or another approved method.14Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
FUTA uses Form 940, filed annually by January 31 (with a 10-day extension if all deposits were made on time).15Internal Revenue Service. About Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return You track liability quarterly. If cumulative undeposited FUTA tops $500 at the end of any quarter, deposit it by the last day of the following month. If you never cross $500, you can pay it with the annual return.16Internal Revenue Service. Employment Tax Due Dates
Penalties for Late or Missing Deposits
Late deposits for either tax face tiered penalties:
- 1–5 days late: 2% of the unpaid amount
- 6–15 days late: 5%
- More than 15 days late: 10%
- After IRS notice demanding payment: 15%
The tiers don’t stack. A deposit 20 days late gets the 10% penalty, not 2% plus 5% plus 10%. Interest accrues on unpaid employment taxes at a rate that adjusts quarterly (7% for the first quarter of 2026, 6% for the second).17Internal Revenue Service. Failure to Deposit Penalty
The Trust Fund Recovery Penalty
The most serious exposure sits on the FICA side. Taxes withheld from employee paychecks are “trust fund” money: the business is holding the employee’s own money until it reaches the IRS. If those withheld amounts don’t get deposited, the IRS can assess the Trust Fund Recovery Penalty against any individual responsible for the deposits who willfully failed to make them.18Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty (TFRP)
The penalty equals the full amount of the unpaid trust fund taxes and it attaches personally, not just to the business. Officers, directors, shareholders, and anyone with authority over how the company’s money is spent can be held liable. The IRS treats a failure as “willful” when the responsible person knew about the outstanding taxes and paid other creditors instead. Bad intent isn’t required.18Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty (TFRP)