Whether you’re a business owner or an employee, do you know how much you’re paying in payroll taxes? If the answer is “no,” you aren’t alone. Below, you’ll learn what qualifies as payroll tax, how to calculate payroll tax and how to differentiate payroll tax from income tax.
EXPLORE PLANS
What Is Payroll Tax?
Payroll taxes are payouts to federal and state governments. Whenever an employer pays an employee, a portion of the paycheck gets deducted before it even reaches the employee’s bank account. This portion is split into three categories to fund government programs:
- Federal Insurance Contributions Act (FICA): This law funds the federal government’s Social Security and Medicare programs. Qualifying individuals who are retired or have disabilities get Social Security to live off of and Medicare to cover medical expenses.
- Federal Unemployment Tax Act (FUTA): Federal income tax helps workers who have lost their jobs until they get back on their feet. Only the employer pays this tax.
- State Unemployment Tax Act (SUTA): This is the same type of tax as FUTA, but it’s on the state level. Again, only the employer pays it.
What Is FICA Payroll Tax?
FICA taxes include both Social Security and Medicare taxes. As of 2024, employers and employees each pay 6.2% for Social Security and 1.45% for Medicare. That is a total of 7.65% for each party or 15.3% for both parties. If you’re self-employed, you must pay the entire 15.3% yourself.
The Social Security portion of FICA has a wage limit of $168,600. If you make more than $168,600 in a year, you don’t have to pay 6.2% for anything beyond that. The 1.45% for Medicare reduces to 0.9% after you reach $200,000 in annual wages. There is no earnings limit or additional reduction for anything made after that.
What Is FUTA Payroll Tax?
FUTA funds payments to workers who have lost their jobs. It is for workers across the country, not just in specific states.
Employers must pay FUTA taxes on employees who make $1,500 or more throughout the year. The FUTA tax rate is 6% on the first $7,000 in income. After an employee surpasses $7,000 in income, the employer can stop paying FUTA tax on them.
Form 940 is the tax form that employers use to report their FUTA taxes. Although it covers the entire calendar year, you may have to deposit your FUTA taxes before you file it. If your FUTA taxes are $500 or more in a quarter, you deposit them by the end of that quarter. Otherwise, you pay all of them by Jan. 31 with Form 940.
What Is SUTA Payroll Tax?
SUTA taxes are specific to state unemployment benefits. They vary by state, but there are three numbers to look for:
- Minimum rate: This is the lowest amount you can expect to pay in SUTA taxes for an employee. For example, if the minimum rate is 0.5%, the lowest amount you could pay is 0.5% of the employee’s earnings.
- Maximum rate: This is the highest amount you can expect to pay in SUTA taxes for an employee. For example, if the maximum rate is 10.5%, the highest amount you could pay is 10.5% of the employee’s earnings.
- Wage base: This is the point at which you stop paying SUTA taxes. Once the employee earns above this threshold, you no longer have to pay unemployment taxes. This number is usually higher than the $7,000 FUTA threshold.
Now that you are armed with these definitions, use this Equifax table to determine what to expect for your state.
Calculating Payroll Taxes
You can calculate payroll taxes in one of two ways: with payroll software or without payroll software.
With Payroll Software
Investing in payroll software can save you the headache of manually calculating payroll tax yourself. It’s standard for payroll solutions to calculate federal tax rates, but that’s not the case for state and local taxes. You may have to read the fine print on provider websites to find a solution that can calculate these taxes as well.
Without Payroll Software
Maybe you only have a few employees. Or, maybe you have a limited budget and want to cut back on spending. Either way, you can use Publication 15-T from the IRS to calculate federal payroll tax by hand. This publication details two methods for doing this: the Wage Bracket Method and the Percentage Method.
The Wage Bracket Method is meant for workers who make below $100,000 in a year. The Percentage Method is for workers who make over $100,000. Pages 12 and 56 have step-by-step instructions for these two methods.
Note that Publication 15-T is only for federal payroll tax. Visit your state and local websites for information on their calculations.
Other Taxes
Income tax is the other type of tax that gets deducted at the same time as payroll tax. How much your employer deducts to send to the federal government depends on how much you make. Here’s a summary of 2024 income tax levels and rates:
| Income Level (Single & Married Filing Separately) | Income Level (Head of Household*) | Income Level (Married Filing Jointly) | Tax Rate |
|---|---|---|---|
| $11,599 or lower | $16,549 or lower | $23,199 or lower | 10% |
| $11,600 to $47,149 | $16,550 to $31,099 | $23,200 to $94,199 | 12% |
| $47,150 to $100,524 | $63,100 to $100,499 | $94,200 to $201,049 | 22% |
| $100,525 to $191,949 | $100,500 to $191,949 | $201,050 to $383,899 | 24% |
| $191,950 to $243,724 | $191,950 to $243,699 | $383,900 to $487,449 | 32% |
| $243,725 to $609,349 | $243,700 to $609,349 | $487,450 to $731,199 | 35% |
| $609,350 or higher | $609,350 or higher | $731,200 or higher | 37% |
*A head of household is someone who has a qualifying child or relative as a dependent but does not file taxes with a spouse.
The table above shows the figures for the 2025 filing season, which is when you’re filing taxes for 2024. The idea with the bracket system is to increase tax with income to put less of a burden on workers who earn less.
Tax Penalties
If you do not pay your federal taxes correctly, you are subject to IRS penalties. These are the penalties for underpayments and overpayments:
| Condition | Rate |
|---|---|
| Overpayments for individuals | 8% |
| Overpayments for corporations | 7% |
| Overpayments above $10,000 for corporations | 5.5% |
| Underpayments for individuals | 8% |
| Underpayments for corporations | 10% |
These are the rates as of the first quarter of 2024. Keep an eye on the IRS website for news releases as these rates change.
There are also penalties for being late on making deposits. They are:
| Condition | Rate |
|---|---|
| 1 to 5 days late | 2% |
| 6 to 15 days late | 5% |
| 16 days late or more AND on orbefore the 10th day after the firstLate notice sent | 10% |
| After the 10th day after the first late notice sent OR the day you receive a demand for immediate payment (whichever is earlier) | 15% |
The Bottom Line
Payroll taxes are deducted from every paycheck, taking a portion of the employee’s earnings. It is up to the employer to calculate and deduct taxes properly based on how much the employee makes and how they fill out their W-4 form.
Frequently Asked Questions About Payroll Tax Rates
State payroll tax rates vary. However, the employee and employer each pay 6.2% for Social Security and 1.45% for Medicare for federal FICA payroll taxes. For FUTA, the employer pays 6% until they reach $7,000.
Payroll tax rates have remained unchanged for 2024. FICA tax is still 15.3%, and FUTA tax is still 6%.
Penalties for late payment of payroll tax range from 2% to 15% of the total amount owed. There is a range because it depends on the number of days it takes you to make the payment from the day owed and/or the late notice sent.
The employer pays FUTA taxes. They also pay SUTA taxes.
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