Employer Payroll Taxes Explained: FICA, FUTA & SUTA

Hire an employee and the wage you agree to pay them is only part of what it costs you. On top of every paycheck, the IRS and your state unemployment agency both take a cut — and unlike the employee’s withholding, this money comes straight out of the business’s pocket, not the worker’s. Most new employers underestimate this by 8–12 percentage points of payroll.

Three federal and state programs make up the employer side of payroll tax: FICA (Social Security + Medicare), FUTA (federal unemployment), and SUTA (state unemployment, also called SUI). None of them are withheld from the employee — they are a direct cost layered on top of gross wages.

The Headline Numbers

Add employer Social Security and Medicare together and the baseline employer FICA burden is 7.65% of wages up to the Social Security wage base, then 1.45% above it. FUTA and SUTA sit on top of that, both capped at a much lower wage threshold than FICA.

Run your own numbers with the Employer Payroll Tax Calculator — it applies all three taxes plus optional workers’ comp and benefits to compute a fully-loaded cost per employee.

Employer FICA: Social Security + Medicare

FICA — the Federal Insurance Contributions Act — funds Social Security and Medicare. Both the employee and the employer pay into it, and critically, the employer’s share is not withheld from the paycheck. It’s calculated on the same wage base and paid separately by the business.

Social Security portion — 6.2%, capped

The employer owes 6.2% of each employee’s wages, up to the annual Social Security wage base. For 2026 that base is $184,500 (up from $176,100 in 2025), set by the Social Security Administration’s annual COLA determination. Once an employee’s year-to-date wages cross that line, the employer stops owing Social Security tax on that employee for the rest of the calendar year — the tax is wage-capped, not income-capped, so it resets every January 1.

• 2025 SS wage base: $176,100
• 2026 SS wage base: $184,500

Employer and employee each pay 6.2% independently — the combined 12.4% is the same figure quoted for self-employed people under SECA, since a self-employed person effectively pays both halves themselves.

Medicare portion — 1.45%, uncapped

The employer owes 1.45% of every dollar of wages, with no wage cap — unlike Social Security, Medicare tax applies to the employee’s entire annual wage, however high.

The Additional Medicare Tax is employee-only

Employees who earn above $200,000 (single) or $250,000 (married filing jointly) owe an extra 0.9% Additional Medicare Tax, withheld by the employer from the employee’s paycheck once wages cross $200,000 for that employee (regardless of filing status — the withholding trigger is a flat $200,000 per employer, per IRC §3102). This is an important asymmetry: the employer does not match the 0.9%. The employer’s Medicare obligation stays flat at 1.45% no matter how high the employee’s wages climb. Employers withhold the extra 0.9% and remit it, but it is never an employer cost — it’s purely employee withholding passed through.

FUTA: Federal Unemployment Tax

FUTA funds the federal share of the unemployment insurance system (state workforce agencies administer benefits; FUTA backstops the system and funds administrative costs). It is entirely an employer tax — employees never pay or see it.

Mechanics:

1. The gross FUTA rate is 6.0%, applied to the first $7,000 of each employee’s wages for the year (IRC §3306(b)(1)) — a wage base that has not changed since 1983.
2. Employers who pay their state unemployment tax on time and in full get a credit of up to 5.4% against the federal rate (IRC §3302).
3. That leaves a net FUTA rate of 0.6% (6.0% − 5.4%) for employers in good standing — a maximum of $42 per employee per year ($7,000 × 0.6%).

Credit-reduction states

If a state has borrowed from the federal unemployment trust fund and hasn’t repaid the loan within the statutory window, the US Department of Labor designates it a credit-reduction state for that year. Employers with wages in that state lose part of their 5.4% credit and owe additional FUTA, reported on Form 940 Schedule A.

For 2025, the DOL’s published list includes:

• California — additional 1.2% (net FUTA rate 1.8% instead of 0.6%)
• U.S. Virgin Islands — additional 4.5% (net FUTA rate 5.1%)

Connecticut and New York both repaid their federal UI loan balances before the November 2025 deadline and are not credit-reduction states for 2025. The DOL determines and announces each year’s list every November, so the 2026 list is not published until late 2026.

SUTA / SUI: State Unemployment Tax

SUTA (also called SUI — State Unemployment Insurance) is set entirely by each state’s unemployment agency, not the federal government. Two things vary state by state:

• The rate — new employers typically start at a “standard new employer rate” (often cited around 3.4% for a first-year employer, though this varies by state and industry classification), then move to an experience-rated rate based on the business’s layoff history. Employers with fewer unemployment claims pay lower rates over time; employers with frequent layoffs pay higher rates.
• The taxable wage base — the dollar amount of each employee’s wages subject to SUTA. This ranges enormously: several states (Arizona, Arkansas, California, Florida, Tennessee) use the $7,000 federal FUTA floor as their wage base, while Washington’s 2025 wage base runs as high as $72,800.

Because there is no single federal source publishing all 50 states’ current rates and wage bases, employers should confirm their assigned rate and wage base directly from their state UI agency’s rate notice — new employers get a starting rate; established employers get an updated notice annually reflecting their experience rating.

Worked Example A — $50,000 Employee (Under All Wage Bases)

An employee earning $50,000 in 2026, employer using a state new-employer SUTA rate of 3.4% on a $9,000 state wage base (illustrative — check your actual state notice), no credit-reduction state:

That’s 8.35% of gross wages in employer payroll tax alone — before workers’ comp, benefits, or any other overhead. The fully-loaded cost of this $50,000 employee is at least $54,173.

Worked Example B — $200,000 Employee (Crosses the Social Security Wage Base)

An employee earning $200,000 in 2026, same SUTA assumptions:

Note what happened to Social Security: only $184,500 of the $200,000 wage is taxable — the employer owes tax on the capped amount, not the full salary. Medicare, by contrast, applies to the entire $200,000 with no ceiling. As overall percentage of gross wages, the employer burden actually drops to about 7.34% on this higher earner, because FUTA and SUTA — both capped at low wage thresholds ($7,000–$9,000 in this example) — become a smaller and smaller share of total wages as pay rises. Social Security capping out above the wage base pulls the blended rate down further for wages beyond $184,500.

This is also the wage level where the employee’s own Additional Medicare Tax withholding would start (once wages exceed $200,000), but as noted above, that 0.9% never becomes an employer cost.

Total Employer Burden as a Percentage of Payroll

Because FUTA and SUTA are capped at wage levels far below what most salaried employees earn, the effective employer payroll tax rate is not flat — it is highest on lower-wage employees (where FUTA/SUTA represent a larger share of total wages) and lowest, asymptotically approaching 1.45% Medicare-only, on very high earners once Social Security also caps out.

Rough bands, employer FICA + FUTA + SUTA only (excludes workers’ comp and benefits, which vary too much to generalize):

• Low-wage employees (near or under the SUTA/FUTA caps): employer burden can run 9–12%+ of wages, since FUTA/SUTA hit the full wage.
• Mid-wage employees ($40,000–$150,000): typically 7.5–9%, dominated by the flat 7.65% FICA rate plus a shrinking FUTA/SUTA share.
• High-wage employees (above the SS wage base): trends down toward roughly 1.45%+ on the portion of wages above the Social Security cap, since only Medicare remains uncapped.

Add workers’ compensation insurance (industry- and state-specific, often 0.5%–3%+ of payroll) and benefits (health insurance, 401(k) match — not a tax, but a real cost) to get the true fully-loaded cost of an employee, frequently 20–40% over base salary once everything is included.

Employer-Paid vs. Employee-Withheld — Don’t Confuse the Two

A common new-employer mix-up is treating “payroll tax” as one bucket. It’s really two separate flows that happen to ride on the same paycheck:

The employee’s half of FICA (6.2% + 1.45%) is withheld from their check and remitted alongside the employer’s own matching share — both halves land on the same Form 941, but only the employer’s half is a true business cost. FUTA never touches the employee’s paycheck at all.

Common New-Employer Mistakes

• Forgetting FUTA/SUTA reset annually per employee, at a much lower cap than Social Security. A business that pays an employee $80,000 still only owes FUTA on the first $7,000 and SUTA on the state’s wage base — not the full $80,000. Overestimating FUTA/SUTA liability inflates hiring-cost projections.
• Assuming the SUTA “new employer rate” is fixed. It is a starting point only; the state UI agency reassigns an experience-rated rate — up or down — after the business has enough claims history, typically after 1–3 years.
• Missing a credit-reduction state notice. An employer with even a few employees working in a credit-reduction state (California and the U.S. Virgin Islands for 2025) owes the additional FUTA on Schedule A of Form 940 — easy to miss if payroll software isn’t configured for the specific state.
• Budgeting only for FICA and skipping FUTA/SUTA/workers’ comp entirely when pricing out a new hire — the “load” on top of a wage offer is routinely underestimated by employers hiring their first W-2 employee after years of using contractors (who carry none of this employer-side burden).

Deposit and Filing Cadence

• Form 941 (Employer’s Quarterly Federal Tax Return) — reports and reconciles federal income tax withheld plus both the employee and employer shares of Social Security and Medicare (FICA), filed quarterly. Most employers deposit FICA and withheld income tax on a monthly or semi-weekly schedule (based on prior lookback-period liability), well ahead of the quarterly Form 941 filing.
• Form 940 (Employer’s Annual Federal Unemployment Tax Return) — reports FUTA liability annually. FUTA deposits are typically due quarterly once accumulated liability exceeds $500; the return itself is filed once a year, by January 31 for the prior calendar year.
• SUTA / SUI filings — cadence, forms, and deposit schedules are set independently by each state UI agency, commonly quarterly. Check your state’s specific requirements — they do not follow the federal 941/940 calendar automatically.

Missing FICA deposit deadlines carries steep IRS penalties (up to 15% of the unpaid amount for deposits more than 15 days late), and FUTA/SUTA underpayment can also reduce or eliminate the FUTA credit for that year — so cadence discipline compounds directly into cost.

Related Reading

• Self-employment tax: how it works — the equivalent 15.3% burden a sole proprietor pays instead of employer + employee FICA
• LLC vs S-Corp tax comparison — how entity choice changes who owes FICA/payroll tax and on what wage
• Quarterly estimated tax payments explained — the deposit-cadence discipline self-employed owners face in place of employer withholding

FAQs

Does the employer match the employee’s 0.9% Additional Medicare Tax?

No. The Additional Medicare Tax is entirely an employee-side tax, withheld once an employee’s wages from that employer exceed $200,000 in a calendar year. The employer’s own Medicare obligation stays flat at 1.45% on all wages, with no additional employer-side surtax at any wage level.

Is FUTA the same as SUTA?

No. FUTA is a flat federal tax (6.0% gross, effectively 0.6% net after the state credit) on the first $7,000 of each employee’s wages, and it funds the federal side of the unemployment system. SUTA (or SUI) is a separate, state-administered tax with its own rate — set by each state and adjusted by the employer’s experience rating — and its own wage base, which can run far above the $7,000 FUTA floor.

Why would an employer owe more than the standard 0.6% net FUTA rate?

If the employee works in a state currently designated a FUTA credit-reduction state — a state that has an outstanding federal unemployment trust fund loan balance beyond the repayment window — the employer’s FUTA credit is reduced, and the net FUTA rate rises above 0.6%. For 2025, California (net rate 1.8%) and the U.S. Virgin Islands (net rate 5.1%) were the designated credit-reduction jurisdictions.

Does the Social Security wage base reset mid-year if an employee changes jobs?

Yes, from each employer’s perspective. The Social Security wage base cap applies per employer, per calendar year — if an employee changes jobs mid-year, the new employer owes Social Security tax on that employee’s wages up to the full annual wage base again, even if the employee’s prior employer already capped out. The employee may end up over-withheld across employers and can claim the excess back as a credit on their own return, but each employer’s own FICA obligation is unaffected by wages paid by a different employer.

Where do I find my company’s actual SUTA rate?

Your state’s unemployment insurance (UI) agency sends an annual rate notice once your business has enough payroll history to be experience-rated; new employers are assigned a standard new-employer rate that varies by state and sometimes by industry. There is no single federal source for all 50 states’ current SUTA rates and wage bases — always confirm against your state UI agency’s notice rather than a generic reference figure.