What Payroll Taxes Do Employers Pay?

Payroll taxes are a key payroll expense for every employer. Whether they are withheld from your employees’ wages or set aside by the business for payment at a later date, payroll taxes need to be accounted for each pay period. 

From withholding tax to income tax, social security tax to medicare tax and more, keeping track of payroll tax obligations can be overwhelming, especially if you’re new to payroll processing or a new business owner. 

Fortunately, this guide lays out all you need to know about payroll taxes to be a responsible employer.

Employee Paid Taxes vs Employer Paid Taxes

Both employers and employees pay payroll taxes. Some payroll taxes, like for Social Security and Medicare, are taken out of employee’s paychecks, reducing their take-home pay. 

Payroll taxes that employers pay directly to the government do not affect employee wages. Rather, employers need to set aside enough funds to cover them. They are also responsible for meeting filing deadlines, which are usually quarterly or annually. 

With some payroll taxes, there is a bit of a dual responsibility between the employer and employee. These taxes are commonly known as employee-employer taxes. Let’s take a look at how they work.

Employee-Employer Taxes

Some payroll taxes have a split responsibility between the employer and their staff. In other words, to fulfill the tax obligation, both employers and employees contribute a portion. 

FICA

FICA (Federal Insurance Contributions Act) refers to taxes used to fund the government’s Social Security and Medicare programs. The FICA tax is withheld from employee paychecks as a single percentage, then distributed to each program. 

Now, here’s where things get a little confusing. The FICA tax responsibility is evenly split between employer and employee. Each is responsible for roughly 7.6% of FICA. 

On the employee side, this is accounted for as a percentage of their taxable wages and deducted from their gross wages each paycheck. On the employer side, the business needs to set aside enough funds to cover their portion. 

We’ll discuss how and when these taxes are paid in the section below.  

Employer Only Taxes

There are two main payroll taxes that are solely the responsibility of the employer: FUTA tax and SUTA tax.

FUTA 

FUTA tax, or federal unemployment tax, is used to fund federal unemployment programs to assist United States workers who have lost their jobs. Every year, employers must pay 6% of the first $7,000 they pay each employee.

If you pay your state unemployment tax (SUTA tax, discussed below) on time, you’re eligible for a FUTA tax credit of up to 5.4%. As long as you pay your state responsibilities on time, your FUTA tax could be as little as 0.6%. 

SUTA

SUTA tax, or state unemployment tax, is also allocated toward increasing employment. Each state has its own unique SUTA tax rate, so make sure you’re familiar with your own state’s guidelines. Note that in Alaska, Pennsylvania, and New Jersey, a portion of SUTA taxes are withheld from employee wages. 

Each employer’s SUTA tax rate also depends on the type of business you have and how many former employees have filed for unemployment. Your SUTA tax rate is reassessed annually by the state unemployment agency. Your company will also receive a SUTA tax rate notice outlining your current rate as well as the determining factors.

Depending on your state, there may be exceptions when it comes to the SUTA tax obligation. In some states, nonprofit, religious, and educational organizations could be exempt. If you are unsure whether or not you’re responsible for SUTA, check with your state government or consult an accounting or tax professional.

County and Municipal Payroll Taxes

In addition to federal and state payroll taxes, local governments may also impose taxes on those living and working in the area. County and municipal payroll taxes are used to fund programs like:

• Public transportation
• Parks and recreation
• School districts/education
• Road repairs and community improvement projects 

It’s important to pay close attention to any local payroll taxes and whether or not they are the responsibility of the employer or employee. If the tax is the responsibility of the employee, the employer is responsible for making sure that the appropriate amounts are withheld from each employees’ paycheck. Employers should also note payment deadlines and filing requirements for both employer and employee payroll taxes. 

For detailed information on any county or municipal payroll taxes, refer to your local government website. It may also be in your best interest to consult an attorney or tax professional for guidance, especially if you’re a new business owner. 

How To Pay Employer Payroll Taxes

The withheld taxes from employee wages are deposited through the Electronic Federal Tax Payment System, or EFTPS. This is typically done on a monthly or semi-weekly basis. If you work with a payroll service provider, this process will be handled on your company’s behalf. 

For the employer portion of FICA, a business will file federal Form 941 each quarter and pay the amount due through the EFTPS. Each year, a business will file Form 940 to account for FUTA and SUTA and also pay through the EFTPS. 

Make sure to familiarize yourself with your state’s payroll tax guidelines and consult a tax professional so you can stay on top of tax payment and filing deadlines. 

Summary

Although calculating, tracking, and paying your employer payroll tax can be tedious, it’s an essential component of responsible payroll processing, and thus of accounting and operations. 

Timely payments and accurate accounting will help you handle payroll taxes with ease. Make sure your payroll processing procedures are organized and you have a solid system in place to lower your risk of errors and ensure you meet deadlines.