Definition

Payroll tax is the set of taxes an employer withholds from employee wages or pays on top of them: federal income tax withholding, Social Security and Medicare taxes, and unemployment taxes. The employer calculates, deposits and reports these amounts to federal, state and local agencies on a fixed schedule.

Also known as: payroll taxes, employment taxes, employment tax

Key figures

United States (federal)As of Nov 2, 2026

Social Security tax
6.2% employee + 6.2% employer1IRS Topic 751
Medicare tax
1.45% employee + 1.45% employer1IRS Topic 751
Social Security wage base (2026)
$184,500 a year2IRS Publication 15 (2026)
Additional Medicare Tax
0.9% on wages over $200,0003IRS, Understanding employment taxes
Federal unemployment tax (FUTA, 2026)
6.0% on the first $7,000 per employee2IRS Publication 15 (2026)
FUTA after the state credit
0.6% (with the full 5.4% state credit)4IRS Topic 759

How it works

Each payday the employer withholds federal income tax based on the employee's Form W-4. It also withholds the employee's Social Security tax of 6.2 percent and Medicare tax of 1.45 percent, and pays the same amounts again as the employer's share. Social Security stops once an employee's 2026 wages reach $184,500; Medicare has no cap. Above $200,000 of wages in a year, the employer also withholds a 0.9 percent Additional Medicare Tax, with no employer match.

Federal unemployment tax (FUTA) comes only from the employer: 6.0 percent of the first $7,000 paid to each employee, cut to 0.6 percent with the maximum credit, which requires paying state unemployment taxes in full, by the Form 940 due date and on the same wages, in a state that is not a credit reduction state (there the credit is smaller and FUTA costs more). States add their own unemployment tax, and many add income tax withholding.

Federal deposits are made electronically on a monthly or semiweekly schedule. Most employers report on Form 941 each quarter and on Form 940 and Form W-2 each year. Payroll software and payroll services calculate, deposit and file these taxes, which is where most payroll errors and penalties are avoided.

Example

A design studio pays an employee $5,000 for the month and withholds income tax from the W-4, plus $310 of Social Security and $72.50 of Medicare, and pays another $382.50 as the employer's share. It also owes FUTA on the first $7,000 of the employee's pay for the year, then deposits the income tax, Social Security and Medicare electronically and reports them on Form 941 each quarter. FUTA is reported separately, once a year on Form 940.

How it differs from similar terms

Payroll Tax vs Independent Contractor. Employers withhold and pay payroll taxes for employees, but generally not for independent contractors, who pay their own taxes. Treating an employee as a contractor can leave the employer owing the payroll taxes it did not withhold.

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Facts as of Nov 13, 2026 · LeadChange Research Team

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  1. Federal, state and local tax filing
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Frequently asked questions

What taxes are included in payroll taxes?

Federal income tax withholding, Social Security tax, Medicare tax, the Additional Medicare Tax on high earners, federal unemployment tax (FUTA), and the state and local equivalents. Some come out of the employee's pay, some are paid by the employer, and Social Security and Medicare are split between both.

What percentage is payroll tax?

For Social Security and Medicare, 7.65 percent from the employee and 7.65 percent from the employer: 6.2 percent plus 1.45 percent each. Income tax withholding varies by employee, and FUTA is 0.6 percent of the first $7,000 for employers entitled to the full state credit; it is higher in credit reduction states.

How much are employer payroll taxes?

The employer matches 6.2 percent for Social Security and 1.45 percent for Medicare, and pays FUTA of 6.0 percent on the first $7,000 per employee, or 0.6 percent with the full state credit, which needs state unemployment taxes paid in full and on time, and a state that is not a credit reduction state. State unemployment tax comes on top, at a rate set by each state.

Is there a cap on Social Security tax?

Yes. For 2026, Social Security tax applies only to the first $184,500 of an employee's wages. Medicare has no cap, and wages above $200,000 add the 0.9 percent Additional Medicare Tax, withheld from the employee only.

Which payroll taxes do employees pay and which do employers pay?

Employees pay income tax withholding, their half of Social Security and Medicare, and any Additional Medicare Tax. Employers pay the matching half of Social Security and Medicare, plus FUTA, which is never withheld from pay. Most state unemployment taxes are also employer-paid.

How do employers deposit and report payroll taxes?

Federal deposits go by electronic funds transfer, for example through EFTPS, on a monthly or semiweekly schedule that depends on the size of past tax bills. Most employers file Form 941 every quarter, and Form 940 and Form W-2 every year.

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Sources

The 4 pages this page's facts come from. The date beside each is our last check of the facts taken from it (the oldest, when they differ). The numbers beside the figures above link here.

Quotes from the sources
  1. Internal Revenue Service Topic no. 751, Social Security and Medicare withholding rates“The current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee, or 12.4% total.” “The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total.”
  2. Internal Revenue Service Publication 15 (2026), (Circular E), Employer's Tax Guide“The social security wage base limit is $184,500.” “For 2026, the FUTA tax rate is 6.0%. The tax applies to the first $7,000 you pay to each employee as wages during the year.”
  3. Internal Revenue Service Understanding employment taxes“employers are responsible for withholding the 0.9% Additional Medicare tax on an employee's wages and compensation that exceeds $200,000 in a calendar year.”
  4. Internal Revenue Service Topic no. 759, Form 940 – Federal unemployment (FUTA) tax“If you're entitled to the maximum 5.4% credit, the FUTA tax rate after credit is 0.6%. You're entitled to the maximum credit if you paid your state unemployment taxes in full, by the due date of your Form 940”