Employer payroll taxes in 2026, what employers pay and how to calculate them
For federal purposes, the employer-paid taxes on wages are the employer share of Social Security and Medicare tax, which is not withheld from employees, and FUTA tax, which only employers pay, and most employers also pay a state unemployment tax. Federal income tax and the employee’s share of Social Security and Medicare tax come out of the employee’s pay and are not an employer cost.
Which taxes count as employer payroll taxes?
The federal employer payroll taxes are the employer share of Social Security tax, the employer share of Medicare tax and FUTA tax, and most employers also pay state unemployment tax, which is a separate tax from FUTA. Social Security and Medicare tax are paid by both the employer and the employee, and the employer share is not withheld from employees. FUTA is the federal unemployment tax under the Federal Unemployment Tax Act, and the employer pays it only from its own funds.
The IRS uses the broader term employment taxes, which it says are paid by both employer and employee in some cases and by the employer in others, and its examples include federal income tax, which is withheld from the employee’s pay.
What is the employer payroll tax rate for 2026?
As of November 2026, the employer payroll tax rate is not a single figure, because each tax has its own rate and applies to a different amount of each employee’s wages. For 2026, the employer pays 6.2% Social Security tax on each employee’s wages up to the $184,500 wage base and 1.45% Medicare tax on all of each employee’s wages. The 0.9% Additional Medicare Tax is imposed on the employee only, and employers withhold it on wages they pay above $200,000 in a calendar year, whatever the employee’s filing status, and pay no matching amount. Medicare tax has no wage base limit, so the employer share of Medicare tax continues on all wages for the whole year.
What is the Social Security wage base for 2026, and has the 2027 base been published?
The Social Security wage base is $184,500 for 2026, and the Social Security Administration lists $192,300 as the base for earnings in 2027, as of November 2026.
What does an employer pay for FUTA, and are the 2026 credit reduction states final?
As of November 2026, FUTA tax is 6.0% on the first $7,000 paid to each employee; an employer that pays state unemployment tax in full, on time and on the same wages can take a credit of up to 5.4%, which leaves 0.6%, or at most $42 per employee, but only where the state is not a credit reduction state. The Department of Labor states the $42 maximum for employers that paid state unemployment tax on a timely basis in a state that is not subject to a credit reduction. Which states are FUTA credit reduction states for 2026 is not final until after November 10, 2026, when the Department of Labor announces them.
What does state unemployment tax add, and what is exempt from it?
Each state sets its own state unemployment taxable wage base and tax rates, so an employer confirms its figures with its state workforce agency. What is exempt from state unemployment insurance is decided by state law, and state agencies use their own rules to decide whether an activity counts as employment for state purposes.
How do I calculate employer payroll taxes for one employee?
For one employee in 2026, the employer multiplies wages by 6.2% for Social Security tax up to $184,500, by 1.45% for Medicare tax on all wages and, for FUTA, by 0.6% on the first $7,000 where the full state credit applies, and then adds state unemployment tax at the state’s rate and wage base.
Hypothetical example for 2026. One employee is paid $52,000, which is $2,000 on each of 26 biweekly pay dates, all of it Social Security and Medicare wages, in a state with no credit reduction and with state unemployment tax paid in full and on time.
Employer tax
Arithmetic
Amount
Social Security tax per pay date
$2,000 x 6.2%
$124.00
Medicare tax per pay date
$2,000 x 1.45%
$29.00
Social Security and Medicare tax for the year
26 x ($124.00 + $29.00) = 26 x $153.00
$3,978.00
FUTA tax
$7,000 x 0.6%
$42.00
Employer federal total, before state unemployment tax
$3,978.00 + $42.00
$4,020.00
The employee reaches $7,000 of FUTA wages on pay date 4. For the same wages, the employer withholds $3,224.00 of Social Security tax ($52,000 x 6.2%) and $754.00 of Medicare tax ($52,000 x 1.45%) from the employee, plus income tax based on Form W-4, which is not an employer cost, so the employer remits $7,956.00 for both shares ($3,978.00 of employer tax plus $3,978.00 withheld). The $42.00 FUTA liability is $500 or less, so it is carried forward and can be deposited or paid with Form 940, and the draft 2026 Form 940 instructions give February 1, 2027 as the Form 940 due date for 2026 wages, because January 31, 2027 is a Sunday.
Hypothetical example for 2026, low wages. An employee paid $4,000 in the year, in a state that is not a credit reduction state with state unemployment tax paid in full and on time, has $4,000 of FUTA wages. FUTA tax before credit is $240.00 ($4,000 x 6.0%), the maximum credit is $216.00 ($4,000 x 5.4%), and the net FUTA tax is $24.00 ($4,000 x 0.6%).
How do I calculate employer payroll taxes for an employee above the Social Security wage base?
As of November 2026, the employer stops paying the 6.2% employer share of Social Security tax once an employee’s taxable wages and tips for 2026 reach the $184,500 wage base, and the employer share of Medicare tax continues on all wages for the whole year.
Hypothetical example for 2026. One employee is paid $210,000, which is $17,500 on each of 12 monthly pay dates, in a state with no credit reduction and with state unemployment tax paid in full and on time.
Employer tax
Arithmetic
Amount
Social Security tax, months 1 to 10
$17,500 x 6.2% = $1,085.00 a month, for 10 months
$10,850.00
Social Security tax, month 11
$184,500 minus $175,000 of year-to-date wages = $9,500 taxable; $9,500 x 6.2%
$589.00
Social Security tax, month 12
Wage base already reached
$0.00
Medicare tax, all 12 months
$17,500 x 1.45% = $253.75 a month; $210,000 x 1.45%
$3,045.00
FUTA tax
First $7,000 reached in month 1; $7,000 x 0.6%
$42.00
Employer federal total, before state unemployment tax
$11,439.00 + $3,045.00 + $42.00
$14,526.00
The Social Security total of $11,439.00 equals $184,500 x 6.2%. Year-to-date wages are $192,500 after month 11 and $210,000 after month 12, so the employer begins withholding the Additional Medicare Tax in month 12 on the $10,000 above $200,000. That is $10,000 x 0.9% = $90.00 withheld from the employee, with an employer match of $0.00.
How do I estimate employer payroll taxes and the cost of a new hire?
As of November 2026, an estimate of employer payroll taxes for a new hire adds four calculations on the expected wages, one each for the employer share of Social Security tax, the employer share of Medicare tax, FUTA tax and state unemployment tax.
In formula form, the estimate is wages up to $184,500 x 6.2%, plus all wages x 1.45%, plus FUTA tax of $42.00 or less (the Department of Labor’s stated maximum for employers that receive the full credit in a state that is not a credit reduction state), plus the state’s unemployment tax rate x wages up to the state’s wage base. An employee paid less than $7,000 produces less FUTA tax, and the state workforce agency supplies the state’s rate and base. Workers’ compensation, state paid family and medical leave programs and local taxes are separate from the federal payroll taxes in this estimate and are not part of it.
How is employer payroll tax liability calculated, and who stays responsible when payroll is outsourced?
Employer payroll tax liability comes from federal rules on rates, wage bases and forms and from each state’s rules for state unemployment tax. On Form 941, the lines multiply Social Security wages by 0.124 and Medicare wages by 0.029, which are the employer and employee shares combined. FUTA tax is figured on each employee’s first $7,000 at 0.6% where the full credit applies, and state unemployment tax is figured with the state’s rate and base.
An employer can arrange for a tax professional, financial institution, payroll service or other trusted third party to make federal tax deposits, and an employer that outsources payroll tax duties generally remains responsible for those duties, including liability for the taxes.
Which wages are subject to employer payroll taxes?
Wages subject to federal employment taxes generally include all pay given to an employee for services, in cash or other forms, such as salaries, vacation allowances, bonuses, commissions and taxable fringe benefits, however the pay is measured or paid. The section 15 table in Publication 15 treats federal income tax withholding, Social Security and Medicare, and FUTA separately, as of November 2026, so a payment can be exempt from one tax and taxable for another.
Payment
Social Security and Medicare tax
FUTA tax
Overtime compensation
Taxable
Taxable
Severance or dismissal pay
Taxable
Taxable
Employee 401(k) elective deferrals, which are generally exempt from income tax withholding
Taxable
Taxable
Amounts paid under an accountable plan up to the government per diem or standard mileage rate
Exempt
Exempt
Workers’ compensation payments
Exempt
Exempt
Employer contributions to a qualified retirement plan
Exempt
Exempt
Tips of $20 or more in a month
Taxable
Taxable for tips reported in writing to the employer
Tips of less than $20 in a month
Exempt
Exempt
Wages of hospital interns
Taxable
Exempt
Income tax deductions for qualified overtime and tips do not change the employer share of Social Security and Medicare tax. For 2026, Social Security and Medicare tax apply to household work paid $3,000 or more in cash unless the worker is under age 18 at any time during the calendar year and household work is not the worker’s principal occupation, and FUTA applies to household employers that pay cash wages of $1,000 or more in a calendar quarter of the current or preceding year.
Do I owe employer payroll taxes on independent contractors?
Employer payroll taxes apply to employees, and the IRS says that generally an employer does not have to withhold or pay any taxes on payments to independent contractors. Under the common-law rules, a worker is an employee if the business has the right to control what will be done and how it will be done, even when the worker has freedom of action. What the relationship is called, how pay is measured and whether the worker is full time or part time do not decide it, and the IRS says there is no set number of factors that does.
If a worker treated as a nonemployee was an employee, the employer generally is liable for the Social Security and Medicare taxes and the income tax it did not withhold, and it still owes the full employer share (Publication 15). Section 530 relief may be available if the employer had a reasonable basis for not treating the worker as an employee, filed all required returns, including information returns, consistently with that treatment, and neither the employer nor a predecessor treated any worker in a substantially similar position as an employee for periods after 1977. An employer can ask the IRS to decide a worker’s status on Form SS-8, and the Voluntary Classification Settlement Program, which uses Form 8952, is for employers who want to reclassify workers for future periods.
Some workers who are not common-law employees are treated as employees by statute for Social Security and Medicare tax. The four categories are commission drivers who deliver certain products, full-time life insurance salespeople who sell primarily for one company, homeworkers, and full-time traveling or city salespeople, and the worker must also meet the three tests in Publication 15-A. Commission drivers and traveling or city salespeople who meet the tests are also employees for FUTA.
Do I owe employer payroll taxes on owners and family members?
Whether an owner or a family member creates employer payroll taxes depends on the legal form of the business and, for family members, on the relationship, the worker’s age and the type of business.
For owners, payments to general or limited partners of a partnership are exempt from federal income tax withholding, Social Security and Medicare, and FUTA. If a business is incorporated, an officer who works in the business is an employee of the corporation. Payments by an S corporation to an officer or shareholder must be treated as wages to the extent the amounts are reasonable compensation, and those wages are taxable for Social Security, Medicare and FUTA (Publication 15). Generally, people in business for themselves aren’t employees.
For family members, Publication 15 sets the rules by relationship. A child under 18 working for a parent is not subject to Social Security or Medicare tax if the business is a sole proprietorship or a partnership in which each partner is a parent of the child, but income tax withholding generally applies. A spouse employed by a spouse in a trade or business is subject to income tax withholding, Social Security and Medicare tax, but not FUTA. Wages for the services of a child or spouse are subject to income tax withholding, Social Security, Medicare and FUTA if the child or spouse works for a corporation, even one the parent or spouse controls, for a partnership unless each partner is a parent of the child, or for an estate.
What is exempt from federal unemployment tax?
Some employers, some workers and some payments are exempt from FUTA, and each exemption applies only to the employer, worker or payment type that the IRS names.
Among employers, Section 501(c)(3) organizations generally are not subject to FUTA, and services by employees of a state or political subdivision are exempt from FUTA with no Form 940 required (2025 Form 940 instructions). Non-501(c)(3) tax-exempt organizations are not exempt from FUTA, except for the wages of an employee paid less than $50 in a calendar quarter, and a 501(c)(3) organization is subject to FUTA when it pays wages on behalf of a non-501(c)(3) organization (Publication 15-A).
Among workers, students enrolled and regularly attending classes who work for a private school, college or university are exempt from FUTA and from Social Security and Medicare tax, and H-2A agricultural workers are exempt from both (Publication 15).
Among payments, the 2025 edition of the Instructions for Form 940 lists exempt payments by category, including certain fringe benefits, group-term life insurance, employer contributions to a qualified retirement plan and dependent care, and the 2026 draft revises that list, so an employer confirms against the final 2026 instructions when they post. For 2026, the dependent care assistance exclusion is up to $7,500 per employee ($3,750 if married filing separately), as of November 2026, according to Publication 15-B and the draft 2026 Form 940 instructions. Only the first $7,000 per employee after exempt payments are subtracted is FUTA taxable.
Some states exclude wages from state unemployment tax that FUTA still taxes, such as wages paid to corporate officers, certain payments of sick pay by unions and certain fringe benefits, and the employer may be required to deposit more than 0.6% FUTA tax on those wages.
How and when are employer payroll taxes paid and reported?
Federal tax deposits must be made by electronic funds transfer; a Form 941 filer deposits monthly if it reported $50,000 or less of taxes in its lookback period and semiweekly if it reported more than $50,000, and $100,000 or more accumulated on any day is due the next business day, as of November 2026. Form 941 reports both the employer and employee shares of Social Security and Medicare tax each quarter, FUTA is reported on Form 940 once a year, and Form 941 is not used to report unemployment taxes.
What is the difference between employer payroll taxes and payroll withholding?
Federal income tax, the employee’s share of Social Security and Medicare tax and any Additional Medicare Tax are withheld from the employee’s pay, the employer share of Social Security and Medicare tax and FUTA are not taken from the employee’s pay, and the employer is liable for paying over the tax it is required to withhold.
Can I deduct employer payroll taxes or claim a credit?
IRS Publication 334 tells Schedule C filers that they can deduct the Social Security, Medicare and FUTA taxes they paid out of their own funds as an employer. Under its stated facts, Revenue Ruling 2025-4 holds that mandatory employer contributions paid from the employer’s own funds under a state paid family and medical leave statute are employer payments of state excise tax, deductible under section 164(a) in the year paid or accrued.
Form 8846 is the IRS form for the credit for employer Social Security and Medicare taxes paid on certain employee tips, and a qualified small business uses Form 8974 to apply its research credit against the employer share of payroll taxes. The tip credit is part of the general business credit, is claimed with the employer’s income tax return and does not reduce the Form 941 deposit, and the 2025 Form 8846 instructions cover food or beverage establishments and, for tax years beginning after 2024, certain beauty service businesses where tipping is customary.
What else do employers owe that is not a federal payroll tax?
State paid family and medical leave programs, workers’ compensation and local taxes are separate from the federal payroll taxes on wages and are handled by state or local agencies, so an employer checks with each agency. The Department of Labor lists each state’s workers’ compensation official. According to the Department of Labor, there is no federal law providing paid family and medical leave for workers in the private sector, but some states have their own paid leave programs and requirements. The IRS points employers to state government websites for taxation information and links for employers, and one local example is the Oregon TriMet transit payroll tax, which the Oregon Department of Revenue says is imposed directly on the employer.
Can an employer pay the employee’s share of payroll taxes?
When an employer pays the employee’s share of Social Security and Medicare tax without deducting it from the pay of an employee who is not a household or agricultural employee, the amount paid is added to the employee’s wages for federal income tax withholding and for Social Security, Medicare and FUTA taxes, which raises the taxes owed again. For household and agricultural employees, Publication 15 says the amount is additional income that is not counted as Social Security, Medicare or FUTA wages. For 2026, the Publication 15-A gross-up factor is 0.9235, and stated pay of $170,385.75 or less is divided by 0.9235, while above that amount the Social Security wage base limits the Social Security portion.
Hypothetical example for 2026, taken from Publication 15-A. Stated pay of $500 becomes $541.42 of wages ($500 divided by 0.9235, rounded to the cent). Publication 15-A does not cover an employer that chooses to pay the Additional Medicare Tax on the employee’s behalf.
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