Employer Payroll Taxes Explained
Social Security, Medicare, FUTA, and SUTA — what every employer actually pays on top of wages.
When you hire a W-2 employee, the wage you agree on is only part of what you pay. On top of it, federal and state law require the employer to pay a set of payroll taxes that the employee never sees on their paycheck. Understanding these taxes is the first step to knowing the true, fully-loaded cost of a hire — and to pricing your work so you actually make a profit.
This guide walks through every employer payroll tax in plain English, with current typical rates, and shows how they add up. To see the numbers for your own situation, run them through the free Employee Cost Calculator.
The four employer payroll taxes
There are four payroll taxes most U.S. employers pay on wages: Social Security, Medicare, FUTA (federal unemployment), and SUTA (state unemployment). The first two are collectively called FICA.
1. Social Security tax
Employers pay 6.2% of each employee's wages toward Social Security, and the employee pays a matching 6.2% out of their own paycheck. The employer share is a true added cost to you. Social Security tax only applies up to an annual wage base limit (around $176,000–$184,000 depending on the year); wages above that cap are not subject to the 6.2% Social Security tax. For most hourly and mid-salary roles, you will pay 6.2% on the entire wage because it falls under the cap.
2. Medicare tax
Employers pay 1.45% of all wages toward Medicare, again matched by the employee. Unlike Social Security, Medicare has no wage cap — you pay 1.45% on every dollar of wages, no matter how high the salary. (Employees earning above $200,000 pay an extra 0.9% Additional Medicare Tax, but the employer does not match that portion.)
Together, Social Security and Medicare — the employer half of FICA — add 7.65% to your wage cost before any state taxes.
3. FUTA — federal unemployment tax
FUTA funds federal oversight of state unemployment programs. The gross FUTA rate is 6.0% on the first $7,000 of each employee's annual wages, but employers who pay their state unemployment tax on time receive a credit of up to 5.4%, bringing the effective FUTA rate down to just 0.6%. That works out to a maximum of about $42 per employee per year in most states. It is small, but it is real, and it applies to every employee.
4. SUTA — state unemployment tax
SUTA (also called SUI) is the payroll tax that varies the most. Each state sets its own wage base (the amount of wages the tax applies to) and assigns each employer an experience-rated tax rate based on the company's history of unemployment claims. New employers usually receive a standard "new employer rate," often in the 2%–3.5% range, until they build a claims history.
Because both the rate and the wage base differ by state, SUTA can range from under $100 to several hundred dollars per employee per year. A business in a low-wage-base state pays far less than one in a high-wage-base state, even at the same rate. This is why our calculator auto-fills a realistic SUTA rate and wage base for each of the 50 states, and lets you override them with the exact figures on your state rate notice.
Worked example: a $25/hour employee
Take a full-time employee earning $25/hour, or $52,000 per year, in a typical state:
| Tax | Rate & base | Annual cost |
|---|---|---|
| Social Security | 6.2% of $52,000 | $3,224 |
| Medicare | 1.45% of $52,000 | $754 |
| FUTA | 0.6% of first $7,000 | $42 |
| SUTA | 2.7% of first $9,000 | $243 |
| Total employer payroll tax | ~$4,263 |
That is roughly 8.2% added on top of the wage — and payroll taxes are only one layer of the true cost. Workers' compensation, benefits, paid time off, and overhead stack on top of that.
How to lower your payroll tax burden legally
- Pay SUTA on time to keep your full 5.4% FUTA credit — missing it can multiply your FUTA cost nearly tenfold.
- Manage unemployment claims carefully; your SUTA rate is experience-rated, so fewer claims over time can lower your assigned rate.
- Confirm your assigned SUTA rate every year — states mail a new rate notice annually, and errors happen.
- Classify correctly. Legitimate 1099 contractors carry their own payroll taxes, but misclassifying an employee as a contractor to avoid these taxes is illegal and expensive if caught.