When you're launching a business and building your team, it's easy to focus on upfront costs like wages, benefits, and equipment while overlooking the impact of payroll taxes.  

But these taxes are a significant part of the overall cost of having employees, and as an employer, you’re responsible for handling multiple types of taxes with each paycheck.

These taxes and deductions, collectively known as payroll taxes, include federal, state, and local income tax withholding, along with Social Security, Medicare, and unemployment taxes. Some states also require premium payments for workers' compensation insurance, which, though not a tax, can be handled through the payroll process.

In many cases, payroll taxes are a shared responsibility between you and your employees.  

However, some are paid entirely by the employer: No portion is deducted from employee wages.

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?

Employer-only taxes are payroll taxes that the employer pays entirely out of their pocket. Nothing is withheld from the employees’ wages to cover them.  

You don’t need to be a payroll expert to stay on top of your employer tax obligations, but it’s important to understand which tax responsibilities fall solely on your business. These taxes should not be deducted from an employee’s wages, and failing to calculate or pay them properly can result in fines, interest, or penalties.

Payroll Taxes Paid Solely by Employers

So, which payroll taxes are employers solely responsible for? They include federal unemployment tax, state employment tax (in most states), and, while not a payroll tax, workers' compensation insurance.

Federal Unemployment Tax Act (FUTA)

The Federal Unemployment Tax Act (FUTA) is a federal law that requires most U.S. employers to pay a tax to support unemployment insurance programs. This is one of the key employer-paid taxes that businesses need to account for: Employees do not contribute to FUTA through payroll deductions or any other manner.

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.

It’s also worth noting that wages in this case aren’t limited to hourly or salaried pay. The IRS includes bonuses, commissions, paid time off (PTO), and certain retirement contributions in the definition of taxable wages under FUTA.

FUTA taxes help fund the federal share of unemployment insurance programs, particularly:

• Administrative costs for state unemployment systems.

• Extended unemployment benefits during periods of high job loss, such as economic downturns or national recessions.

FUTA is designed to work in tandem with state unemployment taxes, also known as state unemployment insurance (SUI). As an employer, you're generally responsible for paying both. If your business qualifies for the maximum state tax credit, you may receive a credit of up to 5.4%, effectively lowering your FUTA rate to 0.6%. This varies from state to state, so be sure to check the rules in your state.

State Unemployment Tax Act (SUTA)

The State Unemployment Tax Act (SUTA) helps fund unemployment insurance programs at the state level. The money collected goes into your state's unemployment fund, which provides benefits to eligible workers who lose their jobs through no fault of their own.

Like FUTA, SUTA is typically an employer-paid tax obligation. However, a few states, such as Alaska, New Jersey, and Pennsylvania, require employees to contribute as well, making it a shared responsibility in those areas.

Unlike the FUTA rate, which is set at a flat percentage by the federal government, SUTA tax rates vary by state. Each state sets its own rate structure and wage base, and rates are often influenced by factors like the employer’s size, industry-specific rules, and the company's history of unemployment claims. New businesses may be assigned a standard rate until they establish an employment record.

Workers' Compensation Insurance

While not a payroll tax, workers’ compensation insurance is another important employer-paid expense tied directly to having employees on your payroll. Workers’ compensation insurance helps provide financial support for employees who experience job-related injuries or illnesses.

Employers' responsibilities and rates vary by state, but in most cases, workers’ compensation coverage is mandatory once you hire even a single employee. Some states may offer exceptions for very small businesses, sole proprietors, or certain industries, but for many employers, it’s a legal requirement.

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

Not carrying the required coverage can result in significant penalties, including fines, stop-work orders, and criminal charges in severe cases. That’s why it’s important to understand your state’s specific guidelines and make sure your policy meets legal standards.

Payroll Taxes Shared Between Employers and Employees

Not all payroll taxes are paid solely by the employer. Many responsibilities are shared between you and your employees. These taxes are still part of your overall payroll obligations, but employees also contribute through paycheck withholdings.

So, what falls into this shared category?

One major component is the Federal Insurance Contributions Act (FICA) tax, which covers Social Security and Medicare. The total FICA rate is 15.3% of an employee’s wages. As the employer, you’re responsible for paying half of that amount (7.65%), while the other half is withheld from your employee’s paycheck.

Another shared area, though in a slightly different way, is income tax withholding at the federal, state, and local levels. These taxes are entirely employee-paid, but it’s your responsibility to calculate, withhold, and send those payments to the proper tax authorities. In this case, your role is all about accurate administration and timely remittance.

A quick comparison: While FICA and income tax withholding require active participation from both employers and employees, taxes like FUTA, SUTA, and workers’ compensation insurance are considered employer-paid taxes. That means they come out of your business budget, not your employees’ paychecks.

Why It's Important to Understand Employer-Only Payroll Taxes

When it comes to payroll taxes, what you don’t know really can hurt you. Missteps with employer-only taxes such as overlooking a required payment or filing late can lead to fines, back payments, and audits. None of these outcomes are good for your bottom line.

Not only can understanding your payroll tax obligations help you prevent unnecessary trouble, but it also can inform your financial planning. When you know what to expect, you can budget more accurately, and you're better prepared to avoid costly surprises that could disrupt your cash flow.

Once you have a handle on which payroll taxes are your responsibility, it becomes easier to recognize the importance of staying up to date on federal and state tax laws. These laws can change, and the updates could affect how much your business should pay or filing requirements. Keeping track of these changes is necessary to make accurate payments and stay compliant.

How SurePayroll Helps Employers Manage Payroll Taxes

If you find the complexities of payroll taxes more than you want to deal with, you’re not alone. Getting every detail right across federal, state, and local levels can be time-consuming and stressful, particularly for small businesses with limited bandwidth.

That’s where SurePayroll® by Paychex can help. A trusted online payroll provider, SurePayroll supports small businesses nationwide by helping to take the guesswork out of payroll. We can help you handle your small business payroll, including calculating, withholding, filing, and paying the required payroll taxes. That means more time to focus on growing your business and fewer worries about missing a deadline or making a costly mistake.

Learn more about how SurePayroll can simplify payroll for your business.  

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