business.com receives compensation from some of the companies listed on this page. Advertising Disclosure
BDC Hamburger Icon

MENU

Close
BDC Logo
Search Icon
ArrowFinance
Updated Mar 12, 2024

Guide to Employer Payroll Taxes

A business must understand how payroll works and be able to implement it correctly, complying with all regulations.

author image
Julie Thompson, Senior Writer & Expert on Business Operations
Verified CheckEditor Verified
Verified Check
Editor Verified
Close
A business.com editor verified this analysis to ensure it meets our standards for accuracy, expertise and integrity.

Table of Contents

Open row

You’ve taken the time to write a business plan, streamline day-to-day operations and staff your business with the right people. However, one of the tasks that can make or break a successful employer is payroll. It’s critical to understand how payroll taxes work and comply with regulations.

Whether you file payroll taxes yourself or use one of the best payroll companies, we’ve got you covered. This quick reference guide provides a thorough overview of completing payroll taxes accurately and on time.

Editor’s note: Looking for the right payroll software for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

What are payroll taxes?

Payroll taxes are the taxes paid on your employees’ hourly wages and salaries. Additionally, these taxes fund Social Security and Medicare. According to the United States Department of the Treasury, so far in 2024, individual income taxes make up 51 percent of total revenue while Social Security and Medicare make up an additional 34 percent.

As a significant source of government revenue, half of the payroll taxes are paid by employers (7.65 percent) and the other 7.65 percent is debited directly from employee paychecks. While the employer and employee share payroll taxes, most of the cost is passed on to the employee.

What are the types of payroll taxes?

These are the four main payroll tax categories:

  • Federal income tax
  • Federal payroll tax
  • Self-employment tax
  • Federal Unemployment Tax Act (FUTA) tax

See our in-depth guide below outlining the four different types of payroll taxes and how to calculate them.

Mandatory and optional payroll tax responsibilities 

You are liable for these mandatory and tax responsibilities for your company:

  • Income tax withholding
  • Quarterly declarations of income tax withholding and federal payroll tax
  • Annual reporting of Social Security and employees’ tax payments
  • FUTA
  • State-level reporting

Here are some of the voluntary tax responsibilities you can opt for: 

  • 401(k) employer-sponsored plans or other retirement funding
  • Flexible spending accounts
  • Wage garnishments, such as child support

How to calculate employer payroll taxes

Consider these aspects of your business when calculating payroll taxes:

  1. Taxable workers: These employees are subject to employer payroll taxes while independent contractors pay their own taxes.
  2. Taxable wages: Taxable wages include salary, bonuses and gifts.
  3. Quantify withholding amounts: You’ll do this for federal, state and local taxes.

We describe the main payroll tax types in more detail below.

Federal Insurance Contributions Act (FICA) tax

FICA is the combined federal payroll tax that includes Social Security and Medicare. You will pay the same combined rate as your workers: 7.65 percent. The following is a breakdown of the FICA taxes for Social Security and Medicare.

You pay a 6.2 percent tax rate for each employee for your company toward Social Security while each staff member also pays 6.2 percent for Social Security. The 6.2 percent rate is based on the employee’s gross taxable wages. Once your associate reaches $168,600 (up from the 2023 limit of $160,200) in gross taxable wages for 2024, you no longer have to withhold Social Security taxes or contribute Social Security taxes for that employee. 

You must pay a 1.45 percent tax rate for each employee for Medicare while your worker also pays 1.45 percent. This rate is based on the employee’s gross taxable wages. 

There is no wage base for Medicare tax. Consequently, once an employee reaches a certain wage threshold, they must pay an additional 0.9 percent in Medicare taxes based on their filing status. The 2024 thresholds are $200,000 (single), $250,000 (married filing jointly) and $125,000 (married filing separately).

FYIDid you know
Regardless of the employee’s gross taxable wages, you are not required to pay an additional Medicare tax ― only the base 1.45 percent.

Self-employment tax

When you are self-employed, you’re considered both an employer and an employee. Consequently, you must pay both parts of FICA ― 15.3 percent ― toward Social Security and Medicare. This combined tax is also known as the Self-Employment Contributions Act (SECA) tax.

Of the total 15.3 percent in SECA taxes, 12.4 percent goes to Social Security and 2.9 percent is paid to Medicare. If you are filing as self-employed, you must pay Social Security tax until you earn $142,800 annually. After meeting that threshold, you no longer owe money in Social Security taxes.

You are also subject to the same rules as FICA regarding Medicare taxes. Once you reach the wage threshold of $200,000 (single), $250,000 (married filing jointly) and $125,000 (married filing separately), you are required to pay an additional 0.9 percent in Medicare taxes.

Filing Schedule SE (Form 1040) can help you estimate self-employment taxes. 

FUTA tax 

While the FUTA tax is the same for all employers at 6 percent, the State Unemployment Tax Act tax varies from state to state. States can charge fees for administrative costs and job training. You’ll receive a percentage range based on your employment history and how often your workers collect unemployment.

TipBottom line
You can pay FUTA taxes electronically using EFTPS (Form 940). While most employers pay FUTA taxes quarterly, if you owe less than $100, you can wait until you owe at least $100 to make a payment.

Payroll tax FAQs

You are responsible for reporting and depositing income tax and FICA for your company. However, you can choose between two deposit schedules: monthly and semiweekly. All new businesses begin as monthly depositors, but it is important to check every year to see if your status has changed:
  • Monthly deposits: Monthly deposits are made by the 15th day of the following month. For example, all April employment taxes must be paid by May 15.
  • Semiweekly deposits: Semiweekly payments made on a Wednesday, Thursday or Friday are deposited by the following Wednesday. Payments made on Saturday, Sunday, Monday or Tuesday should be completed by the following Friday.
Before each calendar year, you must review IRS Publication 15 (Form 941, 944 and 945) or Publication 51 (Form 943) to determine which deposit schedule your business requires. Late deposits can result in a penalty of up to 15 percent. FUTA tax (Form 940) deposits are required quarterly for tax amounts over $500. You must deposit the FUTA tax by the end of the month directly after the quarter ends. Did You Know?: It’s important to familiarize yourself with the funds transfer system ― the Electronic Federal Tax Payment System ― for all federal tax deposits.

Federal income tax and FICA

Here are the forms you need to file for federal income tax and FICA:
  • Form 941: As the Employer’s Quarterly Federal Tax Return, Form 941 is filed each quarter with information on sick pay withholding and supplemental unemployment benefits. The reporting due dates are April 30, July 31, October 31 and January 31.
  • Form 943: The Employer’s Annual Federal Tax Return for Agricultural Employees is used to report agricultural wages. The reporting due date is January 31.
  • Form 944: The Employer’s Annual Federal Tax Return is for employers whose annual tax liability is $1,000 or less. The reporting due date is January 31.
  • Form 945: The Annual Return of Withheld Federal Income Tax is filed to report backup withholding. The reporting due date is January 31.
You will need to file these forms regarding wages and W-2 forms:
  • Form W-2: The Wage and Tax Statement reports wages, tips and other employee compensation. The reporting due date is January 31.
  • Form W-3: The Transmittal of Wage and Tax Statements sends W-2 information to the Social Security Administration. The reporting due date is January 31.

Self-employment

Self-employed individuals who own a business file taxes as a sole proprietor or independent contractor. You may also fall under the self-employed umbrella if you are a member of a partnership that owns a trade or company or if you’re in business for yourself ― part-time or full-time. Self-employed individuals pay an income tax and a self-employment tax that covers their Social Security and Medicare tax contributions. You can determine if you are subject to self-employment and income taxes and whether your business made a profit or loss. To calculate your business profit or net loss, subtract your business expenses from your company income. Then, report your findings on Form 1040 or 1040-SR. Here are the forms you’ll need if you’re self-employed:
  • Form 1040-ES: The Estimated Tax for Individuals form helps you estimate your income taxes and FICA since you have both the employer and employee tax responsibilities.
  • Schedule C: The Profit or Loss From Business form is for annual tax returns, as it calculates your business profit or loss.
  • Schedule SE: The Self-Employment Tax form is for the calculation of FICA. It includes Form 1040 or 1040-SR.
Bottom Line: There are specific self-employed tax considerations. If your self-employment net earnings are $400 or more, you must file an income tax return. If your earnings were less than $400, you still might have to file because of additional filing requirements listed on Form 1040 and 1040-SR.

FUTA

When you file your FUTA return, you’ll need Form 940.
  • Form 940: FUTA is only paid by the employer. The reporting due date is January 31.
If your small business is incorporated but doesn’t have any employees, you are required to pay federal, state, local and FICA taxes because you are the sole employee of your company. However, you are considered self-employed if you do not have any staff and are not incorporated. Therefore, you are required to report and pay taxes on your income quarterly.
January is the busiest month for payroll taxes. Consider scheduling some time before the end of the year to gather and complete all of the required forms. Even if you use an accountant to complete payroll taxes, you must ensure they have all the necessary information to meet the required deadlines. Here are the payroll tax deadlines for the calendar year:
  • January 31 or February 1: If January 31 falls on a Sunday, then all quarterly filings for Q4 and year-end filings are due on February 1.
  • April 30: This is when Q1 quarterly filings are due.
  • August 2: This is when Q2 quarterly filings are due.
  • November 1: This is when Q3 quarterly filings are due.
  • 15th of every month: If the 15th day of the month falls on a weekend, payroll tax payments for the previous month are due on the following Monday. For example, you should submit your payroll tax payments for March on April 15.
Yes. The Tax Division of the Department of Justice pursues criminal investigations and prosecutions against individuals and entities that willfully fail to comply with tax responsibilities, as well as those who aid in such situations. Financial penalties are calculated based on the number of days your payment is late.
If you fail to file Form 941 or Form 944 by the deadline, your business will have to pay a 5 percent fine for the total tax amount due. You will be charged an additional 5 percent each month that the return is not submitted to the IRS (up to five months).

The best payroll software for managing payroll taxes.

At business.com, we researched the best payroll software to find options for small businesses.

We examined several essential factors, such as automation, compliance and customer service options. We selected the following payroll software as our best picks:

  • ADP. We chose ADP since it can automate payroll tax calculations and filings. ADP will pay fines or penalties for any tax error on their part. The platform will even communicate with government agencies on your behalf and provide customer support when you have compliance questions. Learn more in our review of ADP.
  • Rippling. We selected Rippling for its 100 percent error-free guarantee when overseeing tax filing paperwork. Rippling automatically calculates and files payroll taxes so your human resources team minimizes errors. Employees can sign and update tax documents through a central online portal. Learn more in our review of Rippling.
  • OnPay. We picked OnPay, which can handle computer payroll taxes and withholdings with ease. The software can submit tax forms to the appropriate agencies, both annually and quarterly. OnPay can process unemployment insurance payments, company contributions and deduct garnishments with two clicks. Learn more in our review of OnPay.
author image
Julie Thompson, Senior Writer & Expert on Business Operations
With nearly two decades of experience under her belt, Julie Thompson is a seasoned B2B professional dedicated to enhancing business performance through strategic sales, marketing and operational initiatives. Her extensive portfolio boasts achievements in crafting brand standards, devising innovative marketing strategies, driving successful email campaigns and orchestrating impactful media outreach. Thompson's proficiency extends to Salesforce administration, database management and lead generation, reflecting her versatile skill set and hands-on approach to business enhancement. Through easily digestible guides, she demystifies complex topics such as SaaS technology, finance trends, HR practices and effective marketing and branding strategies. Moreover, Thompson's commitment to fostering global entrepreneurship is evident through her contributions to Kiva, an organization dedicated to supporting small businesses in underserved communities worldwide.
BDC Logo

Get Weekly 5-Minute Business Advice

B. newsletter is your digest of bite-sized news, thought & brand leadership, and entertainment. All in one email.

Back to top