Which Payroll Taxes Are Paid by Employers and Have No Employee-Paid Portion?

Employers alone pay Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Act (SUTA) taxes, and they cover the full cost of workers’ compensation insurance. None of these are deducted from employee wages.

You split Federal Insurance Contributions Act (FICA), Social Security taxes, and Medicare taxes evenly with your employee. Federal income tax withholding is deducted from employee wages, but you calculate the withholding amount and remit it.

SurePayroll By Paychex automates payroll tax calculations, deposits and filings based on your schedule.

Here’s a closer look at which payroll taxes are paid by employers and have no employee-paid portion.

What are employer-only payroll taxes?

You pay employer-only taxes out of your business budget, not your employees’ wages. Knowing which payroll taxes are your responsibility can help you plan your budget and file on schedule.

Payroll taxes paid solely by employers

You have three employer-only obligations: federal unemployment tax (FUTA), state unemployment tax (SUTA) in most states, and workers’ compensation insurance.

Federal Unemployment Tax Act (FUTA)

FUTA is the federal payroll tax you pay to fund unemployment insurance programs. Employees do not contribute. This one is yours alone.

The current FUTA tax rate is 6% on the first $7,000 in wages you pay each employee during the calendar year. This is often referred to as the FUTA wage base. You pay FUTA quarterly through EFTPS and report your payments annually on Form 940.

FUTA applies to more than base wages. The IRS counts bonuses, commissions, paid time off, and certain retirement contributions toward the $7,000 wage base.

Your FUTA payments fund two things: the administrative costs of running state unemployment systems, and the federal share of extended unemployment benefits during economic downturns.

FUTA pairs with SUTA, and you generally pay both. If you pay your SUTA on time and in full, you may be eligible for a federal credit of up to 5.4%, which drops your effective FUTA rate from 6% to 0.6%. State rules vary. Confirm yours through your state’s department of labor.

State Unemployment Tax Act (SUTA)

SUTA is your state’s version of unemployment tax. Your state unemployment insurance (SUI) payments go directly into your state’s unemployment fund, which pays benefits to workers who lose their jobs through no fault of their own.

In most states, SUTA is your responsibility. Three states currently require employees to contribute as well: Alaska, New Jersey, and Pennsylvania. If you operate in one of those states, you’ll withhold an employee portion in addition to paying the employer share.

SUTA rates vary by state. Each state sets its own wage base and assigns you a rate based on your industry, your business size, and your unemployment claims history. As a new employer, you’ll typically start at a standard rate, and your rate adjusts as you build a claims history.

Workers’ compensation insurance

Workers’ compensation isn’t a payroll tax, but you pay it the same way: It’s an employer-only expense tied to having employees on your payroll. The policy covers medical costs and lost wages for employees who get injured or sick because of their job.

In most states, you’re required to carry workers’ comp coverage when you hire your first employee. A few states allow exceptions for sole proprietors or specific industries, but if you’re hiring employees rather than working with independent contractors, you may need it.

Several factors influence whether you’re required to carry coverage and how much you’ll pay, including:

•       Your state’s laws

•       The size and structure of your business

•       The type of work your employees perform

•       Your company’s claims history

Coverage requirements vary by state, so confirm yours before your first hire date. Your state’s workers’ compensation board or a licensed insurance agent can tell you what you need and what it’ll cost.

The payroll taxes you pay as an employer — FUTA, SUTA, the employer half of FICA, and workers’ compensation premiums — are generally deductible as a business expense on your federal tax return.  

These tax deductions reduce your taxable business income and lower your tax liability. Your specific situation depends on your business structure and how you file. Confirm the details with your tax professional before you file.

Payroll taxes shared between employers and employees

You either split the other payroll taxes you process with your employee, or you pay them entirely out of their wages. You still calculate them, withhold them, and remit them, but your dollar cost is either half (FICA) or zero (income tax).

FICA tax (Social Security and Medicare) totals 15.3% of your employee’s taxable wages. You and your employee split it evenly: You pay 7.65% as the employer, and you withhold 7.65% from their paycheck. For employees earning over $200,000, you’re also required to withhold an additional Medicare tax of 0.9%.

Your employee pays 100% of their federal, state, and local income taxes. You don’t pay for these employee taxes from your business. You determine each amount based on your employee’s form W-4, withhold them from each paycheck, and remit them to the IRS and your state and local tax authorities on your deposit schedule. You report your federal tax payments on Form 941.

You pay FUTA, SUTA, and workers’ comp from your business budget. Your employees don’t see those on their pay stubs.

SurePayroll processes your employer tax deposits and submits your employees' withheld taxes, on your deposit schedule.

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Why it’s important to understand employer-only payroll taxes

Knowing your employer-only taxes, you plan your hiring budget, pay each agency on time, and keep your small business in good standing.

When you know what each new hire costs in employer taxes, you plan your salary offers, your benefit budget, and your cash flow with full information.

Tax rates, wage bases, and filing thresholds change. The FUTA wage base, SUTA rates, and workers’ comp requirements can shift year to year, especially at the state level. You confirm your rates annually — with your state agency for SUTA and your insurer for workers’ comp — to keep your payroll calculations current from the start of each year.

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Automate payroll tax calculations with SurePayroll

The next step is execution: determine your payroll taxes for every employee and file with the right agency on the right schedule, every pay period. That’s where a payroll service earns its place.

SurePayroll calculates, withholds, and files your federal, state, and local payroll taxes automatically — on your schedule. You run payroll. SurePayroll automates the tax filings.

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