The payroll taxes employers pay
| Tax | Employer rate | Wage base | Notes |
|---|---|---|---|
| Social Security (OASDI) | 6.2% | Up to the annual wage base set by the SSA | Employee also pays 6.2% |
| Medicare (HI) | 1.45% | All wages | Employee also pays 1.45%; Additional Medicare Tax is employee-only |
| FUTA | 6.0% before credit | First $7,000 per employee | Credit of up to 5.4% for timely state payments, often 0.6% net |
| State unemployment (SUTA) | Varies | Set by each state | Rate often depends on the employer's claims history |
Employers also withhold — but do not pay — employee income tax and the employee share of FICA. Some states and localities add their own payroll taxes.
Why payroll taxes matter to profitability
For most employers, the combined employer FICA rate of 7.65% applies to nearly every wage dollar. On a $5 million payroll, that is roughly $382,500 a year before unemployment taxes — a cost that grows automatically with every raise and every hire.
That makes payroll tax a meaningful part of the fully loaded cost of employment, alongside wages and benefits. See how to improve profit margins.
What legitimately changes the taxable wage base
The IRS defines which payments are wages for each tax. Certain benefits are excluded, which is why benefit structure affects payroll taxes. Examples described in IRS Publication 15-B include:
- Qualified benefits elected through a Section 125 cafeteria plan.
- Employer contributions to accident and health plans.
- Certain de minimis and working-condition fringe benefits.
- Accountable-plan expense reimbursements (which are not wages at all).
Employee 401(k) deferrals are an important exception: they reduce federal income tax withholding but are still subject to Social Security and Medicare.
What to avoid
Misclassifying employees as contractors, paying wages “off the books,” or delaying deposits can create penalties and personal liability for responsible individuals. Payroll-tax savings should come from documented, compliant structures reviewed by qualified professionals.
Frequently asked questions
What percentage of payroll do employers pay in taxes?
Employer FICA alone is 7.65% of wages for most employees (Social Security stops at the annual wage base). FUTA and state unemployment taxes add to that, usually on a limited amount of wages per employee.
Sources
This article provides general educational information, not tax, legal, payroll, benefits or accounting advice. Tax rules change and depend on your specific facts; validate your situation with qualified tax and legal professionals. Any Upside Workforce figures are illustrative, not a quote or promise of results.