US Payroll Taxes Explained for First-Time Employers
The salary you offer is only part of what an employee costs. Behind every US paycheck sit taxes you withhold from the employee, taxes you pay yourself, and a deposit and filing calendar that does not forgive mistakes. This explainer breaks each one down with the 2026 figures.
Key takeaways
- Payroll taxes come in two groups: amounts you withhold from employees and amounts you pay as the employer.
- For 2026, Social Security is 6.2% each for employer and employee on wages up to $184,500, and Medicare is 1.45% each with no wage limit.
- Federal unemployment tax (FUTA) is 6.0% on the first $7,000 per employee, usually 0.6% after the state credit. State unemployment rates vary.
- Withheld taxes are held in trust for the government. Unpaid trust fund taxes can be collected from owners personally.
Your first hire turns you into a tax collector. From the first paycheck, you are responsible for calculating several different taxes, holding the money, depositing it on time and reporting it accurately. Get it right and payroll fades into the background. Get it wrong and the penalties can outweigh what you saved by doing it casually.
This article focuses on the taxes themselves: what each one is, who pays it, and how it moves from your bank account to the IRS and your state. If you want the wider setup, such as pay schedules and choosing a provider, our general payroll basics guide covers that. This is general information, not tax advice. Rates and wage bases change every year, and state rules vary widely, so confirm details with the IRS, your state agencies or a tax professional.
Before you calculate anything: the registrations
You need a few identifiers and forms in place before the first payroll run.
- Get an Employer Identification Number (EIN). This is the federal ID that appears on every payroll filing and deposit.
- Collect Form W-4 from each employee. It tells you how much federal income tax to withhold.
- Complete Form I-9 for each employee. It verifies identity and work eligibility. Use E-Verify where your state or a contract requires it.
- Register with your state. Most employers register for state income tax withholding (where the state has an income tax) and for state unemployment insurance.
- Report new hires to your state. Every state runs a new-hire reporting program. Many payroll providers file these reports for you.
Taxes you withhold from the employee
These come out of the employee's gross pay. You do not pay them yourself, but you are legally responsible for withholding and depositing them correctly.
Federal income tax
The amount depends on the employee's pay, pay frequency and the choices on their Form W-4. The IRS publishes withholding methods and tables each year, and payroll software applies them automatically. Ask employees to submit a new W-4 when their situation changes; you do not decide their withholding for them.
Employee Social Security and Medicare (FICA)
The Federal Insurance Contributions Act (FICA) covers two taxes. In 2026, Social Security is 6.2% of wages up to $184,500, so the most any one employee pays through you is $11,439. Medicare is 1.45% of all wages, with no cap.
On top of that, you must withhold the 0.9% Additional Medicare Tax from an employee's wages once they pass $200,000 in the calendar year with your business. You do not match this extra 0.9%.
State and local income tax
Most states have an income tax with their own withholding tables and forms. A handful have none. Some cities and counties add local income taxes too. Check where the employee lives and works, because both can matter.
Taxes you pay as the employer
These are your costs, on top of wages. Budget for them before you set a salary.
| Tax | Employer rate (2026) | Applies to |
|---|---|---|
| Social Security | 6.2% | Wages up to $184,500 per employee |
| Medicare | 1.45% | All wages, no limit (no employer match on the 0.9% additional tax) |
| FUTA | 6.0%, usually 0.6% after state credit | First $7,000 of wages per employee |
| SUTA (state unemployment) | Set by your state | State wage base, which varies |
Your FICA match
You pay the same 6.2% Social Security and 1.45% Medicare as the employee. Together, that is 7.65% of wages for most employees, until Social Security stops at the wage base.
Federal unemployment tax (FUTA)
FUTA funds the federal side of unemployment insurance. The rate is 6.0% on the first $7,000 of each employee's wages for the year. If you pay your state unemployment taxes in full and on time, you usually get a credit that brings the effective rate down to 0.6%, which is $42 per employee per year. In credit-reduction states, where the state has outstanding federal loans, the credit is smaller and you pay more. Employees never pay FUTA.
State unemployment tax (SUTA)
Each state sets its own unemployment tax rate and wage base. New employers usually get a standard new-employer rate, which later moves up or down based on your history of former employees claiming benefits. A few states also collect small employee contributions or other payroll-based taxes, so read your state's employer guide.
Worked example
Imagine Ridgeway Bikes, a made-up shop, hires a mechanic at $3,000 a month. Each month the shop withholds $186 for Social Security (6.2%) and $43.50 for Medicare (1.45%), plus federal and state income tax based on the W-4 and state form. The shop then pays its own match: another $186 and $43.50. FUTA applies only to the first $7,000, so it runs out partway through March; at the effective 0.6% rate, that totals $42 for the year. Assume a made-up state unemployment rate of 2.5% on a $10,000 state wage base: another $250 for the year. The employer taxes in this example add roughly $3,050 a year on top of $36,000 in wages.
Depositing the taxes: EFTPS and your schedule
Federal employment taxes are deposited electronically, usually through the Electronic Federal Tax Payment System (EFTPS). This covers federal income tax withheld, both halves of Social Security and Medicare, and FUTA.
The IRS puts you on either a monthly or a semiweekly deposit schedule, based on the total taxes you reported during a "lookback period." New employers generally start on the monthly schedule. Larger payrolls move to semiweekly. The IRS explains which one applies in its employer tax guide, and your payroll provider should track it for you. FUTA has its own quarterly deposit rule once the amount owed passes a threshold.
States run separate systems for withholding and unemployment, with their own schedules. Put every agency and every due date on one calendar.
Common mistake
Using withheld payroll taxes to cover a cash shortfall, planning to catch up next month. The money you withhold belongs to the employee's tax account, not to the business. If it is not deposited, the trust fund recovery penalty can make owners and other responsible people personally liable for the unpaid amount. Pay the IRS first and delay something else.
Filing the returns
Deposits pay the tax. Returns tell the IRS what you owed, so it can match them.
- Form 941 (quarterly): reports wages, federal income tax withheld and both halves of Social Security and Medicare. Due at the end of April, July, October and January for the preceding quarter.
- Form 940 (annual): reports FUTA. Due by 31 January for the previous year.
- Forms W-2 and W-3: each employee's annual wages and withholding, plus the summary. Due to employees and to the Social Security Administration by 31 January.
- State returns: withholding and unemployment reports, often quarterly. Dates vary by state.
With the end of the year approaching, now is a good time to check that every employee's name, address and Social Security number are correct in your system, so W-2s go out cleanly in January.
Pro tip
Open a separate bank account for payroll taxes. Every pay run, move the withheld taxes and your employer share into it. When deposit day comes, the money is already set aside, and you can see at a glance that it was never yours to spend.
Software or do it yourself?
You can calculate all of this with IRS publications and a spreadsheet, but the risk sits in the calendar, not the arithmetic. Payroll services such as Gusto, ADP, Paychex, QuickBooks Payroll, OnPay and Rippling calculate withholding, make deposits and file most federal and state returns. Plans and features change, so compare current options. Even with software, you remain responsible for funding the account on time and for the accuracy of what you enter.
First-employer payroll tax checklist
- Get an EIN and register with your state for withholding and unemployment
- Collect a W-4 and complete an I-9 for every employee
- Report each new hire to your state
- Enroll in EFTPS and confirm your deposit schedule
- Budget employer FICA, FUTA and SUTA on top of every salary
- Set aside payroll taxes in a separate account each pay run
- Calendar Form 941, Form 940, W-2 and state deadlines
- Watch for employees approaching the $184,500 and $200,000 thresholds
Frequently asked questions
Do I withhold taxes for a part-time employee?
Yes. Part-time employees are employees. You withhold income tax based on their W-4, withhold and match FICA, and pay unemployment taxes on their wages like anyone else.
What happens when an employee earns more than $200,000?
Once their wages from you pass $200,000 in the calendar year, you start withholding the extra 0.9% Additional Medicare Tax from their pay. You do not pay a matching 0.9%.
Do I pay payroll taxes on independent contractors?
No, genuine contractors handle their own taxes. But classification depends on the real working relationship, not the label. Misclassifying an employee as a contractor can lead to back taxes and penalties, so check with an adviser if you are unsure.
How do I know if my state is a credit-reduction state?
The Department of Labor and the IRS publish the list each year, usually late in the year. Your payroll provider will normally apply any reduction on Form 940.
Related reading
The bottom line
US payroll taxes follow a clear pattern: withhold income tax and FICA from the employee, add your own FICA match plus federal and state unemployment, deposit through EFTPS on your schedule, and report on Forms 941, 940 and W-2. For 2026, remember the $184,500 Social Security wage base and the $200,000 trigger for Additional Medicare Tax.
Budget for employer taxes before you make an offer, keep withheld money separate, and let reliable software handle the calendar. When anything is unclear, check IRS guidance or ask a payroll professional before the deadline, not after.
