A new employer wears two hats on payroll tax: withholding the employee's share from wages and paying a separate employer share from its own funds. The four federal pieces are federal income tax withholding, Social Security, Medicare, and federal unemployment tax, known as FUTA. Rates, wage bases, and deposit schedules shift year to year and must be confirmed for the current tax year. This article is general information, not tax advice for a specific situation.
Table of Contents
- What payroll taxes does an employer pay versus withhold?
- How much are employer payroll taxes in 2026?
- How do you run payroll for the first time without missing a deposit?
- Which payroll tax forms does a new employer have to file?
- What are the most common payroll tax mistakes new employers make?
- Are employer payroll taxes deductible, and who actually pays them?
- When does multi-state payroll turn into a sales tax and filing problem?
- Key Takeaways
- References
What payroll taxes does an employer pay versus withhold?
An employer splits federal employment taxes into two buckets: amounts withheld from the employee's pay and amounts paid only by the employer. From the employee's wages, the employer withholds federal income tax, the employee's 6.2% Social Security share, and the employee's 1.45% Medicare share. The employer then pays a matching 6.2% Social Security and 1.45% Medicare from its own funds, according to the Internal Revenue Service.
FUTA is paid only from the employer's own funds and is never withheld from an employee's paycheck, the IRS states. The employee's Form W-4 drives how much federal income tax is withheld, worked through IRS Publication 15-T. Employers must also withhold the 0.9% Additional Medicare tax on wages above $200,000 in a calendar year, with no employer match, according to ADP.
How much are employer payroll taxes in 2026?
The FICA rates are Social Security at 6.2% on each side and Medicare at 1.45% on each side, for a combined 15.3% split evenly between employer and employee, according to the Tax Foundation. Social Security has a wage base cap: wages above it are not subject to Social Security tax. That cap changes annually, and the figure for the current tax year should be confirmed rather than assumed.
Medicare has no wage cap, unlike Social Security, the Tax Foundation notes. FUTA runs up to 6% on the first $7,000 paid to each employee, with the effective rate dropping as low as 0.6% depending on state unemployment tax paid, according to ADP. The employer pays FUTA entirely from its own funds.
How do you run payroll for the first time without missing a deposit?
The sequence is: collect a completed Form W-4, classify each worker as employee or contractor, calculate gross pay, apply withholding, then deposit and report. The IRS requires federal tax deposits to be made by electronic funds transfer, according to the Internal Revenue Service.
Deposit frequency is set by a lookback period from July 1 through June 30. A business with $50,000 or less in reported liability during that window deposits monthly, by the 15th of the following month. A business above $50,000 deposits semi-weekly, within days of each payday, according to Symmetry. Small employers with annual liability under $1,000 may file Form 944 once a year instead of quarterly Form 941s.
Which payroll tax forms does a new employer have to file?
The federal forms are Form 941 quarterly, Form 944 annually for small employers, Form 940 for FUTA, Form 943 for agricultural employees, and Form 945 for nonpayroll payments, according to the Internal Revenue Service. W-2 forms must be e-filed by filers of 10 or more in a calendar year.
Paying a non-employee $600 or more in a year triggers a 1099-MISC by January 31 of the following year, according to Symmetry. Filing deadlines shift year to year and should be confirmed for the current tax year.
What are the most common payroll tax mistakes new employers make?
Treating a worker as a contractor when the role functions like an employee is a common mistake, and it creates back liability for unpaid withholding and employer taxes. The classification question turns on control and the nature of the work, not on what the business prefers to call the relationship.
Missing the monthly versus semi-weekly deposit switch is another frequent error. A growing year can push reported liability past the $50,000 lookback threshold, changing deposit timing before the owner notices. Assuming the Social Security wage base is fixed, or carrying forward an old figure instead of confirming the current one, also causes errors. Late federal deposits carry a 2% penalty at one to five days late and 10% at 16 or more days late, according to Symmetry.
Are employer payroll taxes deductible, and who actually pays them?
The employer's own share of Social Security, Medicare, and FUTA is a business expense. Withheld amounts are the employee's money held in trust and are not the employer's cost. Employer-paid taxes are not taken out of an employee's paycheck, but the employee's half is, according to ADP.
Self-employed individuals remit both sides of payroll tax themselves, the Tax Foundation states. States run their own unemployment insurance programs funded by employer-paid taxes, not employee withholding.
When does multi-state payroll turn into a sales tax and filing problem?
Hiring an employee in another state typically creates payroll registration and withholding obligations there. Physical presence from people is one of the oldest nexus triggers, and it is the same presence question that drives sales tax registration. A business already selling across state lines often has payroll and sales tax exposure stacking up in the same states at the same time.
Spencer Accounting Group is a 100% virtual firm that handles multi-state Sales Tax Resolution, including nexus review, exposure quantification, voluntary disclosure, and getting current with each state. The firm also provides bookkeeping and tax filing, with Back Tax Return Filing for owners who are behind. The work involves sequencing filings and quantifying exposure state by state; outcomes depend on each state's rules and the specific facts of the business.
Key Takeaways
- An employer withholds the employee's share of federal income tax, Social Security, and Medicare, and pays a separate matching share from its own funds.
- FUTA is paid only by the employer and is never withheld from an employee's paycheck.
- Social Security is 6.2% per side and Medicare is 1.45% per side, for a combined 15.3% split evenly.
- The Social Security wage base is a cap that changes annually and must be confirmed for the current tax year; Medicare has no cap.
- FUTA runs up to 6% on the first $7,000 paid per employee, with the effective rate falling as low as 0.6%.
- Deposit frequency is set by a July 1 to June 30 lookback period, with $50,000 in reported liability separating monthly from semi-weekly depositors.
- Late federal deposits carry a 2% penalty at one to five days late and 10% at 16 or more days late.