Payroll Tax

Payroll taxes are levies on wages and salaries that employers are required to pay or to withhold and remit to federal, state and local government agencies. In the United States, payroll taxes primarily fund Social Security, Medicare and unemployment insurance programs. Employers bear responsibility for calculating, withholding and remitting certain payroll taxes on behalf of their employees, as well as paying the employer share for taxes such as those under the Federal Insurance Contributions Act (FICA) and federal and state unemployment tax laws. 

Employers with workers in multiple states must navigate federal payroll tax requirements alongside varying state unemployment and income tax withholding obligations. 

What Is Payroll Tax?

"Payroll tax" is an umbrella term for several distinct taxes applied to wages and salaries.  

Technically, they are different from income taxes, although employers typically manage income tax deductions and remittances on wages and salaries as part of payroll processing. 

Unlike income taxes—which fund general government operations—payroll taxes are mostly earmarked for specific social insurance programs. Both employers and employees contribute to certain payroll taxes, while others are paid solely by the employer. Each type carries its own rate, wage base and payroll tax filing requirements. 

What Types of Payroll Taxes Do Employers Pay?

U.S. employers are responsible for calculating, withholding, remitting and paying several categories of payroll taxes. The first two in this list are called FICA taxes, named for the FICA (Federal Insurance Contributions Act) that mandates them. 

• Social Security tax. The Social Security tax rate is 6.2% for both the employer and the employee. For 2026, this tax applies to wages up to $184,500 per employee — a threshold known as the Social Security wage base. Wages above that amount are not subject to this tax.
• Medicare tax. The Medicare tax rate is 1.45% for both the employer and the employee. There is no wage base limit. Employees who earn more than $200,000 in a calendar year owe an additional 0.9% on wages above that threshold, which the employer withholds but does not match.
• Federal Unemployment Tax (FUTA). Employers pay the FUTA tax at a gross rate of 6% on the first $7,000 of each employee's wages per year. Employers may receive a credit of up to 5.4% if they make timely contributions to their state unemployment fund typically, bringing the effective FUTA rate to 0.6%.
• State Unemployment Tax (SUTA). The employer also pays state unemployment taxes. Rates and wage bases vary by state and are shaped by the employer's claims history—known as an experience rating.
• State and local income tax withholding. Employees pay these taxes, but employers are generally required to calculate, withhold and remit state and local income taxes based on where each employee works. However, not all states and localities levy these taxes.

What Is the Difference Between Payroll Tax and Income Tax?

Payroll taxes and income taxes both appear on a pay stub, but they serve different purposes and operate differently. 

For employers, the distinction between payroll and income taxes matters for budgeting. Payroll taxes represent an actual cost on top of wages, while income tax withholding is money collected from the employee and remitted on their behalf. 

How Do Employers Calculate and Remit Payroll Taxes?

Employers follow a consistent process each pay period. Here’s a look at the typical payroll administration workflow: 

1. Determine gross wages for each employee, including salary, hourly pay, bonuses and other taxable compensation.
2. Apply federal income tax withholding rates using each employee's Form W-4 and the current IRS withholding tables.
3. Calculate FICA contributions — 6.2% Social Security and 1.45% Medicare — for both the employee (withheld from wages) and the employer (paid separately).
4. Calculate state and local withholding based on where each employee physically works and the applicable rates for that jurisdiction.
5. Deposit withheld taxes through the Electronic Federal Tax Payment System (EFTPS) on the IRS-assigned schedule — monthly or semi-weekly, depending on total payroll tax liability from the prior lookback period.
6. Remit state and local taxes according to each jurisdiction's schedule and requirements.
7. File payroll tax returns — Form 941 quarterly, Form 940 annually for FUTA and any applicable state forms.

What Are Common Payroll Tax Deadlines Employers Should Know?

Missing a payroll tax deadline can result in IRS penalties that may escalate the longer an obligation goes unresolved. Key dates to track: 

• Semi-weekly or monthly deposits. FICA and federal income tax withholding must be deposited based on the employer's IRS-assigned deposit schedule.
• FUTA deposits. Required quarterly when accumulated FUTA liability exceeds $500.
• Form 941. Due the last day of the month following each calendar quarter — April 30, July 31, October 31 and January 31.
• Form 940. Annual FUTA return due January 31.
• W-2s and W-3. Filed with the Social Security Administration and distributed to employees by January 31.

State payroll tax filing deadlines vary by jurisdiction and may differ from federal due dates. 

Do Payroll Tax Obligations Change for Multi-State Employers?

Yes. State income tax withholding is generally determined by where an employee physically works — not where the employer is headquartered. That distinction has become increasingly significant as remote and hybrid work arrangements have grown more common among small and medium-size businesses. 

Beyond income tax withholding, employers typically owe SUTA contributions to the state where each employee performs their work. Some states and localities also impose additional payroll-related taxes — including paid family and medical leave premiums and disability insurance contributions — each with distinct rates and wage bases.  

Businesses with multi-state workforces are responsible for tracking each state's requirements separately and maintaining accurate records of where employees perform their work. 

Frequently Asked Questions About Payroll Tax

What is a payroll tax? 

A payroll tax is a tax calculated on employee wages that employers are required to withhold from paychecks and remit to federal, state and local government agencies. In the United States, payroll taxes primarily fund Social Security, Medicare and unemployment insurance programs. 

Who pays payroll taxes — the employer or the employee? 

Both. FICA taxes are split equally between employer and employee. FUTA and SUTA are paid entirely by the employer. Federal and state income tax withholding is the employee's financial obligation, though the employer calculates, withholds and remits it on their behalf. 

What is the difference between payroll tax and income tax? 

Payroll taxes fund specific programs—Social Security, Medicare and unemployment insurance—and are shared between employer and employee at flat rates. Income taxes fund general government operations, are owed only by the employee and are calculated on a progressive scale based on total income. 

What forms do employers use to file payroll taxes? 

Employers file Form 941 quarterly to report withheld income taxes and FICA contributions, and Form 940 annually for FUTA. W-2s must be filed with the Social Security Administration and provided to employees by January 31. State payroll tax filings vary by jurisdiction. 

Can an employer outsource payroll tax obligations? 

Employers can work with third-party providers to handle payroll tax calculations, withholding and remittance. However, the IRS holds the employer ultimately responsible for payroll tax compliance. If a third-party provider fails to remit taxes correctly or on time, the employer remains liable for those obligations.