What Payroll Taxes Do Employers Pay?

Payroll taxes are taxes imposed on the wages paid or received, no adjustments or deductions are allowed. Employers in the United States pay payroll taxes for Social Security, Medicare and unemployment insurance (both state and federal). Employees contribute to Social Security and Medicare as well, but in most cases, only employers pay unemployment taxes.


Social Security Tax


Every employer must pay Social Security tax for every employee. The Social Security tax rate is 12.4% of each employee's wages, 6.2% of which is paid by the employer and other 6.2% by the employee. Self-employed individuals pay the full 12.4% from their earnings. There is a maximum amount set by law to which Social Security taxes apply. Presently, in the year of 2017, this limit is $127,200.00. Accordingly, the maximum an employer may have to pay in Social Security taxes for an employee is $7,886.40 and an employee’s share would be $7,886.40.


Medicare Tax


Employers must also pay Medicare taxes for every employee. As of 2017 the Medicare tax rate is 2.9%, 1.45% of which is paid by the employer and 1.45% by the employee. Unlike Social Security taxes, though, there is no limit on the amount of wages to which Medicare taxes apply. The employee’s entire income is subject to this type of taxation regardless whether he earns $20,000 or $200,000 per year.


Federal Unemployment Tax


Most employers have to pay federal unemployment tax. This tax is used to pay for unemployment benefits in case of lay offs. Any employer that pays more than $1,500 in any quarter of a calendar year, or has at least one employee on at least one day in 20 weeks out of the year, has to pay unemployment tax. As of 2017, the tax rate is 6% of every employee's wages. The tax applies only to the first $7,000 of wages. Accordingly, the most an employer would have to pay is $420 per employee. Employees do not pay federal unemployment tax.


State Unemployment Tax


Besides Federal Unemployment Tax, every state assesses a separate unemployment tax on the employers. Those tax rates and amount of wages to which they apply vary widely among the states. However, employers are allowed to reduce their federal unemployment tax payments by the amount they contributed to the state unemployment taxes, but only up to a maximum of 5.4% of an employee’s salary.

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