Employers pay half of Social Security and Medicare taxes, plus unemployment insurance

Your employer withholds income tax and half of your Social Security and Medicare taxes from your paycheck. But employers also pay their own share of those same taxes — 6.2% for Social Security and 1.45% for Medicare — directly to the federal government. On top of that, employers pay federal and state unemployment insurance (FUTA and SUTA) based on their total payroll. These employer-paid taxes do not appear on your pay stub, but they affect how much your employer spends on you and, indirectly, what you earn.

The employer portion is a real cost to the business. When a company budgets for hiring, it accounts not just for your salary but for the full cost of employment, including these taxes. In some cases, this may influence whether an employer can afford to hire someone, offer a raise, or provide benefits.

Key Takeaways

  • Employers pay 6.2% for Social Security tax and 1.45% for Medicare tax on your wages, matching the amounts withheld from your paycheck.
  • Employers also pay federal unemployment insurance (FUTA) at 0.6% on the first $7,000 of each employee's annual wages, though most states offer a credit that lowers this.
  • State unemployment insurance (SUTA) rates vary by state and employer history; new employers typically pay 2% to 3%, while established employers may pay less or more depending on their layoff record.
  • The employer portion of payroll taxes is a real cost to the business and may influence hiring decisions, wage levels, or benefits offerings.
  • Self-employed people pay both the employee and employer share of Social Security and Medicare taxes, totaling 15.3% instead of 7.65%.

Social Security and Medicare taxes: the employer match

When you see 6.2% withheld from your paycheck for Social Security, your employer sends an identical 6.2% to the IRS on your behalf. The same applies to Medicare: you pay 1.45%, and your employer pays 1.45%. These are not optional — they are required by law for nearly all W-2 employees.

The Social Security tax rate applies only to wages up to a cap, which changes each year. In 2024, the cap is $168,600, meaning once you earn that much in a calendar year, no more Social Security tax is withheld from your paycheck or paid by your employer. Medicare tax has no cap — both you and your employer pay 1.45% on all wages, no matter how high. High earners also face an additional 0.9% Medicare tax on wages above $200,000 (single) or $250,000 (married filing jointly), and employers must withhold this from the employee's pay, though employers do not pay a matching share of this additional tax.

Federal unemployment insurance (FUTA)

Employers pay federal unemployment insurance tax to fund unemployment benefits when workers are laid off or let go through no fault of their own. The federal rate is 0.6% of the first $7,000 of each employee's wages per year. That means the maximum FUTA tax per employee is $42 annually, even if someone earns $200,000.

Most employers receive a credit of up to 5.4% against the federal rate if they pay state unemployment insurance on time. This credit brings the effective federal rate down to 0.6% for employers in good standing. However, employers in states with unpaid federal loans or those with poor unemployment records may pay a higher effective rate. The IRS publishes the credit percentage each year based on state solvency.

State unemployment insurance (SUTA)

Every state except South Dakota, Texas, and Wyoming requires employers to pay state unemployment insurance. SUTA rates vary widely by state and by employer. New employers typically start at a rate between 2% and 3%, while established employers may pay anywhere from 0.5% to 5% or higher, depending on their history of layoffs and claims.

States use an experience rating system: employers with fewer layoffs and unemployment claims pay lower rates, while those with higher turnover or more claims pay higher rates. This creates an incentive for employers to retain workers. Some states also impose a wage base cap (the maximum wages subject to SUTA tax), which varies by state. For example, one state might tax the first $10,000 of wages per employee, while another taxes the first $35,000. Contact your state's labor department or unemployment insurance agency to find your employer's current rate and wage base.

Self-employed people pay both shares

If you are self-employed, you pay both the employee and employer share of Social Security and Medicare taxes. This is called self-employment tax, and it totals 15.3% (12.4% for Social Security, 2.9% for Medicare). You calculate this on Schedule SE and pay it with your income tax return, usually in quarterly estimated tax payments.

The IRS does allow a deduction for half of your self-employment tax when you calculate your adjusted gross income, which provides some relief. Self-employed people do not pay FUTA or SUTA; those explore only to employers with W-2 employees.

Payroll tax deposits and reporting

Employers must deposit withheld income tax and the employer and employee shares of Social Security and Medicare taxes with the IRS on a schedule determined by the amount owed. Most employers deposit monthly or semi-weekly. Employers file Form 941 (Employer's Quarterly Federal Tax Return) each quarter to report these amounts, and Form 940 (Employer's Annual Federal Unemployment Tax Return) once a year to report FUTA.

State unemployment insurance is reported and deposited separately according to each state's rules. Employers also file W-2 forms for each employee by January 31, showing all wages and taxes withheld during the year. These filings create a record that protects both the employer and the employee by documenting what was paid and when.

Frequently Asked Questions

Does my employer's payroll tax rate affect my take-home pay?

Not directly. The employer portion does not appear on your pay stub or reduce your paycheck. However, it is part of the total cost of employing you, so in some cases it may influence the salary or benefits an employer can offer. In a tight labor market, employers may compete on total compensation regardless of their tax burden.

What happens if my employer does not pay payroll taxes?

The IRS can assess penalties, interest, and liens against the business. Employees are still responsible for their own income tax and Social Security tax liability, even if the employer fails to pay. If you suspect your employer is not paying, contact the IRS at 1-800-829-1040 or file Form 13909 (Whistleblower Form) online.

Do nonprofit organizations pay payroll taxes?

Yes. Nonprofits that are exempt from income tax (501(c)(3) organizations) still pay Social Security, Medicare, and unemployment insurance taxes on employee wages. They do not pay federal income tax, but payroll taxes are mandatory.

Can my employer deduct payroll taxes as a business expense?

Yes. Employers deduct payroll taxes (both the employer share and the withheld employee share) as a business expense on their tax return. This is standard and reduces the employer's taxable income.

What if I work for multiple employers in the same year?

Each employer withholds Social Security tax up to the annual cap ($168,600 in 2024). If your combined wages exceed the cap, you may have overpaid Social Security tax. You can claim a credit for the overpayment when you file your tax return on Form 1040.