Which taxes are paid by employers in the US?

If you’re planning to hire employees in the US, you may be wondering which payroll taxes you’ll need to pay. 

Depending on where and how you hire people, this answer can vary — but many of the core obligations are the same. 

In this article, we’ll go over which taxes you will need to pay, and which taxes you might need to pay. We’ll also explore some key payroll tax points to consider, and explain what to do if you want to work with independent contractors.

So let’s dive straight in.

What taxes are paid by an employer in the US?

In the US, employers are responsible for withholding, paying, and, in some cases, contributing to certain taxes. These are known as payroll taxes and include Social Security, Medicare, and unemployment.

Here are the primary tax obligations you will need to account for.

Federal and state income tax 

As in most countries, you are responsible for withholding part of your employees’ wages and paying it to the tax authorities in a timely manner. The specific rate for each tax depends on the employee’s level of income and filing status.

For you to know this, your employees need to fill out a W-4 form. You can then use this information to calculate how much income tax to withhold from each paycheck. 

In most cases, employees must pay income tax at both the federal and state level (and, in some cases, at city or county level, too). Some states — such as Florida, Texas, and Alaska — do not have a state income tax.

If you have employees working remotely in other states, you need to withhold income taxes for the state where they live — not the state where your company is headquartered. Note that, in some instances, there are certain conditions that must be met for this rule to apply.

To learn more about your payroll tax obligations in each state, check out our free US State Explorer tool. You can also see what the full employment costs are for your hires with our free Cost Calculator tool.

As the employer, you do not make any contributions to your employees’ income tax.

FICA tax 

The Federal Insurance Contributions Act (FICA) tax is a combined tax that consists of Social Security and Medicare. Both you and your employee contribute an equal percentage of their wages.

Social Security tax

Social Security is designed to fund employees’ retirement benefits after they leave the workforce. Both you and your employee contribute 6.2% (12.4% overall) on the employee’s salary, although any income over the first $168,600 is not taxed.

Medicare tax 

As the name suggests, Medicare funds healthcare costs. The 2.9% rate is shared equally between you and your employee, with both parties contributing 1.45%. There is no wage base limit on Medicare, meaning it applies to employees of any wage.

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Unemployment tax 

Unemployment contributions provide financial assistance for those between jobs. 

In most states, employers are responsible for paying unemployment taxes. In some states, though, employees also need to contribute.

Federal unemployment tax (FUTA)

Employers pay a 6% tax rate on the first $7,000 of wages paid to each employee per year. After the wage base is reached, they don't need to pay any more FUTA tax for the year.

State unemployment tax (SUTA)

State unemployment insurance tax rates and eligibility differ by state, so you will need to check and monitor your employees’ individual state regulations. Remote can do this for you, and ensure that you are withholding and paying the correct amounts at all times, wherever your people are based.

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How do you calculate employer payroll taxes in the US?

As mentioned, you are responsible for withholding and paying payroll taxes on your employees’ behalf. This includes FICA, FUTA, and income tax. 

Your employees will receive Form W-2 at the end of the year summarizing their wages and taxes withheld. They'll need this form to file their individual income tax returns, and claim any credits or deductions they're eligible for. 

Before jumping into any calculations, you first need to collect tax information from your employees through the following documents: 

• Form I-9: This form verifies your employees’ eligibility to work in the US and is required for all personnel. 

• Form W-4: As mentioned, this form determines how much tax you will withhold. 

• State and local tax forms: Some states have their own withholding forms. 

Calculating federal and state taxes

The specific rates and calculations for federal and state income tax withholding depend on each employee’s income, filing status, and state residency.

Federal income tax withholding

Each employee’s W-4 form will indicate their filing status and the amount of income tax to withhold from each of their paychecks.

State income tax withholding

As discussed, some states require you to withhold state income tax from your employees’ wages. Check with each state’s authorities to determine the exact rates.

Calculating FICA taxes

To calculate FICA taxes, figure out each employee’s gross pay (i.e., their total earnings before any taxes or other deductions are taken out). 

Social Security

Once you know the gross pay, multiply it by the Social Security rate (6.2%). 

If your employee earns $2,000 in gross pay in a pay period, their Social Security contribution would be $124 ($2,000 x 6.2%). You would also need to contribute $124.

Medicare

To calculate the Medicare tax, multiply the employee’s total gross pay by the Medicare rate (1.45%).

Again, if your employee earns $2,000, their contribution would be $29 ($2,000 x 1.45%). You would also need to contribute $29. 

Calculating FUTA and SUTA taxes

Only the first $7,000 of an employee's annual wages are subject to FUTA tax. To calculate how much you owe, multiply the taxable wages by the FUTA tax rate (6%).

If your employee earns $60,000 per year, you would only need to pay tax on the first $7,000. Therefore, your annual FUTA contribution would be $420 ($7,000 x 6%).

However, it’s important to note that you can claim a FUTA tax credit of up to 5.4% on taxes paid, effectively reducing the rate to 0.6%.

Unlike FUTA rates, which are the same across the country, SUTA rates can vary significantly. Each state also has their own payment process, which can range from monthly to quarterly.

What about independent contractors?

Independent contractors are classed as self-employed and, therefore, are responsible for filing and paying their own taxes. This means that you don’t need to withhold or contribute any payroll taxes when paying a contractor. 

However, you are required to report payments of $600 or more to 1099 contractors to the Internal Revenue Service (IRS) using Form 1099-NEC. This helps the IRS make sure contractors are reporting their income correctly.

Ensure you don’t misclassify your contractors, though. This can lead to penalties, fines, and backdated payments, as well as significant reputational damage.

Our employee misclassification risk tool can help you determine your team members’ statuses.

When are employee taxes paid by employers in the US?

The timing of payments generally depends on two main factors:

• The type of tax being paid: Different taxes have different deposit schedules. 

• The amount being withheld: The IRS has specific rules around the total amount of taxes that can be withheld throughout a quarter.

Monthly deposit schedule

Employers withholding more than $50,000 in total FICA and federal income taxes during a quarter must pay taxes on a monthly basis. The rule of thumb is to deposit withheld taxes on the 15th of the month following the pay period. 

So, if you pay your employees on June 30, you need to deposit withheld taxes by July 15. 

Semi-weekly deposit schedule

Employers who withhold between $7,500 and $50,000 in total federal income and FICA taxes during a quarter need to make a semi-weekly deposit. 

You are required to pay withheld taxes on the Wednesday following the pay period if your employees were paid on the previous Wednesday, Thursday, or Friday.

For example, if you paid employees on Friday, July 7, you'd need to submit the tax deposit by Wednesday, July 12.

How are taxes paid to the government by an employer?

The actual act of paying taxes is relatively simple. The most convenient way is to deposit your withheld taxes electronically through the Electronic Federal Tax Payment System (EFTPS). This system also allows you to schedule payments in advance and receive confirmation when those payments are processed.

Remote can make these deposits on your behalf, in full compliance with the relevant deadlines. 

Managing payroll taxes with Remote

As mentioned, Remote can take all of this off your plate. We ensure that your employees are paid promptly and accurately, that all relevant taxes are withheld and paid at the federal, state, and local levels, and that any reporting and paperwork obligations are met.

Our local, in-house experts can also advise you on your tax options, and provide support and guidance whenever it is needed.

This isn’t just restricted to the US, either. If you have team members in different countries, you can manage all aspects of your payroll through our centralized global payroll system. 

To see how it works — and to learn how we can remove all your payroll headaches — book a demo with one of our friendly experts today!

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