Payroll taxes explained: FICA, FUTA and state unemployment

Payroll taxes are a mix of taxes withheld from employees and taxes employers pay themselves. Getting them right matters, because withheld taxes belong to the government from the moment they are withheld. This guide explains each tax and how it is reported.

By Hamza Fida, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. Checked against official sources on . 2 minute read.

Short answer

Payroll taxes, explained simply, are the taxes on employees' wages. Employers withhold federal income tax and the employee's 7.65% share of Social Security and Medicare, and pay a matching 7.65% themselves. Social Security applies to wages up to $184,500 in 2026. Employers also pay federal unemployment tax, usually 0.6% of the first $7,000 per employee, and state unemployment tax.

At a glance

Social Security
6.2% employee + 6.2% employer, wages up to $184,500 in 2026
Medicare
1.45% employee + 1.45% employer, all wages
Additional Medicare
0.9% withheld from wages over $200,000
FUTA
6.0% of first $7,000, usually 0.6% after state credit
State unemployment
Rate and wage base set by each state
Federal returns
Form 941 quarterly, Form 940 yearly
Payroll taxes explained: FICA, FUTA and state unemploymentSocial Security: 6.2% employee + 6.2% employer, wages up to $184,500 in 2026; Medicare: 1.45% employee + 1.45% employer, all wages; Additional Medicare: 0.9% withheld from wages over $200,000; FUTA: 6.0% of first $7,000, usually 0.6% after state credit; State unemployment: Rate and wage base set by each state; Federal returns: Form 941 quarterly, Form 940 yearly.KEY FACTS AT A GLANCEPayroll taxes explained: FICA, FUTA and stateunemploymentSocial Security6.2% employee + 6.2%employer, wages up to$184,500 in 2026Medicare1.45% employee + 1.45%employer, all wagesAdditional Medicare0.9% withheld from wagesover $200,000FUTA6.0% of first $7,000,usually 0.6% after statecreditState unemploymentRate and wage base set byeach stateFederal returnsForm 941 quarterly, Form940 yearlyChecked against official sourcesTax BakersPayroll taxes explained: FICA, FUTA and state unemploymentSocial Security: 6.2% employee + 6.2% employer, wages up to $184,500 in 2026; Medicare: 1.45% employee + 1.45% employer, all wages; Additional Medicare: 0.9% withheld from wages over $200,000; FUTA: 6.0% of first $7,000, usually 0.6% after state credit; State unemployment: Rate and wage base set by each state; Federal returns: Form 941 quarterly, Form 940 yearly.KEY FACTS AT A GLANCEPayroll taxes explained: FICA,FUTA and state unemploymentSocial Security6.2% employee + 6.2% employer, wages up to$184,500 in 2026Medicare1.45% employee + 1.45% employer, all wagesAdditional Medicare0.9% withheld from wages over $200,000FUTA6.0% of first $7,000, usually 0.6% afterstate creditState unemploymentRate and wage base set by each stateFederal returnsForm 941 quarterly, Form 940 yearlyChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

Which payroll taxes are there?

TaxWho bears itRate and base
Federal income tax withholdingEmployeeBased on the employee's Form W-4 and pay
Social SecurityEmployee and employer6.2% each, on wages up to $184,500 for 2026
MedicareEmployee and employer1.45% each, on all wages
Additional Medicare TaxEmployee0.9% withheld on wages over $200,000 in the year
Federal unemployment (FUTA)Employer6.0% of the first $7,000 per employee, usually reduced to 0.6% by the state credit
State unemployment (SUTA)Employer, and employees in a few statesRate and wage base set by the state
State income tax withholdingEmployeeIn states with an income tax

Social Security and Medicare together are called FICA: 7.65% from the employee and 7.65% from the employer.

What does it cost per employee?

For an employee paid $50,000 in 2026, the employer pays $3,825 of Social Security and Medicare, $42 of FUTA if the full state credit applies, plus state unemployment at its rate. The employee has $3,825 withheld for Social Security and Medicare, plus income tax.

How does the FUTA credit work?

Employers who pay state unemployment tax on time get a credit of up to 5.4% against the 6.0% FUTA rate, leaving 0.6%. In a credit reduction state, one that has borrowed from the federal government to pay unemployment benefits and not repaid, the credit is smaller and FUTA costs more.

FUTA is reported on Form 940.

Registering for the state tax is covered in state unemployment tax registration.

How are payroll taxes paid?

Withheld taxes and the employer's share are deposited electronically on a monthly or semiweekly schedule the IRS assigns based on past liability, through EFTPS or another electronic method. Form 941 reports each quarter's wages and taxes, Form 940 reports FUTA each year, and Forms W-2 go to employees and the Social Security Administration by January 31. See business tax deadlines.

The quarterly return is covered in Form 941, and year-end wage reporting in Forms W-2 and W-3.

See the payroll tax deposit schedule.

Why are withheld taxes treated so seriously?

Income tax and the employee's FICA withheld from pay are held in trust for the government. If they are not paid over, the IRS can hold the people responsible for paying them personally liable for a penalty equal to the unpaid amount. Never use withheld taxes to fund the business.

See the trust fund recovery penalty.

Do business owners pay payroll taxes on themselves?

Sole proprietors and partners do not; they pay self-employment tax instead. S corporation owners who work in the business are employees and are paid through payroll. See S corp owner payroll and self-employment tax.

Wages paid to family members follow special rules. See hiring family members.

Want payroll handled?

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Questions people ask

What are payroll taxes?

Taxes on employees' wages: income tax and FICA withheld from employees, the employer's share of FICA, and federal and state unemployment tax.

What is the FICA rate for 2026?

7.65% from the employee and 7.65% from the employer: 6.2% Social Security on wages up to $184,500 and 1.45% Medicare on all wages.

How much is FUTA?

6.0% of the first $7,000 of each employee's wages, usually reduced to 0.6% by the credit for state unemployment tax.

Who pays state unemployment tax?

Mainly employers, at a rate and wage base set by the state. A few states also collect from employees.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IRS Publication 15 (Circular E): Employer's Tax Guide
  2. Social Security Administration: Contribution and benefit base, 2026
  3. IRS: Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return
  4. IRS: Form 941, Employer's Quarterly Federal Tax Return

Rules and fees change. If you are reading this long after September 30, 2026, confirm the figures with the source before you rely on them.

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This guide is general information. It is not tax or legal advice for your situation.