Employer payroll taxes are taxes that employers are generally required to pay based on team member wages. These taxes help fund federal and state programs such as retirement benefits, Medicare, and unemployment insurance.
Unlike team member payroll tax withholdings (amounts withheld from a team member's paycheck), employer payroll taxes are generally paid by the employer as an additional payroll expense.
Why employer payroll taxes exist
Employer payroll taxes help fund a variety of public programs, including:
- Social insurance programs that support retirement, disability, and survivor benefits
- Healthcare programs for eligible individuals
- Unemployment insurance systems that provide temporary benefits to qualifying workers
- Workforce development programs in certain states
Many of these programs are funded through contributions from both employers and team members, although funding requirements vary by tax and jurisdiction.
Common federal employer payroll taxes
1. Social security tax
- Employer rate: Generally 6.2% of taxable wages
- Wage base: Applies only up to the annual Social Security wage base, which is adjusted periodically
- Purpose: Helps fund Social Security retirement, disability, and survivor benefits
In most situations, employers are required to contribute an amount equal to the team member's Social Security tax.
2. Medicare tax
- Employer rate: Generally 1.45% of all taxable wages
- Wage base: No wage limit applies
- Purpose: Helps fund the Medicare program
Employers generally match the team member Medicare tax. Team members with wages above certain federal thresholds may also owe an Additional Medicare Tax, which employers typically withhold but do not match.
3. Federal Unemployment Tax (FUTA)
- Statutory rate: Generally 6.0% on the first $7,000 of taxable wages per team member
- Potential effective rate: Many employers qualify for federal tax credits that may reduce the effective FUTA rate, although this can vary based on factors such as state unemployment tax payments and credit reduction status.
- Purpose: Helps fund federal unemployment programs and support state unemployment systems
FUTA is generally paid by the employer and is not withheld from team member wages.
Common state employer payroll taxes
State payroll tax requirements vary by jurisdiction.
1. State Unemployment Insurance (SUI/UI)
State unemployment taxes generally help fund unemployment benefits.
Rates and wage bases may vary based on factors such as:
- State law
- Employer experience rating
- Industry classification
- Employer history
An employer's unemployment tax rate may increase or decrease over time depending on applicable state rules.
2. Employment training tax
Some states impose additional employer payroll taxes that support workforce development or training programs.
For example, California currently assesses an Employment Training Tax (ETT) on certain employers, subject to state rules and annual wage limits.
3. Other state or local payroll taxes
Depending on the jurisdiction, employers may also be responsible for taxes or contributions related to:
- State disability insurance programs
- Paid family or medical leave programs
- Local payroll taxes
- Other employer-paid payroll assessments
Not all of these taxes apply in every state, and responsibility for payment may differ by program.
Summary
Employer payroll taxes vary based on several factors, including:
- Business location: Federal taxes generally apply nationwide, while state and local payroll taxes vary by jurisdiction.
- Team member wages: Some payroll taxes apply only up to an annual wage limit, while others apply to all taxable wages.
- Employer tax rates: Certain taxes, such as state unemployment insurance, may use employer-specific rates that can change over time.
- Applicable tax rules: Filing requirements, tax rates, wage bases, and available credits may change as laws and regulations are updated.
Because payroll tax requirements depend on the employer's circumstances and applicable laws, the total employer payroll tax expense can vary from one business to another.
Mercury Payroll helps businesses manage payroll and related administrative tasks. Mercury does not provide legal, tax, accounting, or investment advice and does not act as your employer, professional employer organization (PEO), employer of record (EOR), or plan fiduciary. You remain responsible for your legal and regulatory obligations, including worker classification, wage-and-hour requirements, tax withholding and reporting, and benefits eligibility.