What are employer payroll taxes

Understand employer payroll taxes and the complexity of calculating the correct amounts, including contributions to Social Security and Medicare. Learn the importance of accurate payroll tax management to avoid potential penalties.

By Brad Nakase, Attorney

Email  |  Call (888) 600-8654

Have a quick question? I answered nearly 1500 FAQs.

Table of Contents
1. Introduction
2. What Are Employer Payroll Taxes?
3. How to Calculate Employer Payroll Taxes
4. How to Manage Employer Payroll Taxes
5. Getting Support with Employer Payroll Taxes

Introduction

Did you know that in addition to the tax that is withheld from an employee’s paycheck, employers also have to pay taxes on the wages they pay to their staff? They are called employer payroll taxes. Often, employers have to split the cost of payroll taxes like Medicare and Social Security with their employees. This is what makes payroll so complex because in addition to ensuring everyone gets paid for their work correctly and on time, you need to calculate employer payroll taxes, where amounts vary depending on a number of factors. Here’s everything you need to know about employer payroll taxes.

What Are Employer Payroll Taxes?

Just as employees pay taxes on their wages, employers pay taxes on their employee wages. These are called employer payroll taxes. Some common examples of payroll taxes include:

  • Social Security tax – Half of the total Social Security tax amount (12.4%) is paid by the employer, and the employee pays the other half.
  • Medicare tax – Half of the Medicare tax amount (2.9%) is paid by employers, and the other half is paid by employees. If the employee earns over $200,000 pa, then the employee will only pay an additional 0.9% in Medicare tax.
  • State unemployment tax – In most states it is only the employer who pays the state unemployment tax, and the amounts vary state by state.
  • Federal unemployment tax – Federal unemployment tax will be between 0.6% – 6%, and it is a payroll tax that only the employer pays.

Employer payroll taxes will vary significantly between states, so it’s important to have expert support in your business to ensure you are paying your employer payroll taxes correctly.

How to Calculate Employer Payroll Taxes

Employer payroll taxes are not a flat rate like FICA taxes and other taxes. They are calculated as a percentage of the employee’s income and the income bracket they fall into.

  • Wage adjustment – When filling out the W-4 form, employers may need to complete wage adjustment to ensure that the employee’s additional income (like bonuses or commissions) and deductions are properly listed. This step is vital to ensuring you pay the right amount of employer payroll taxes.
  • Tentative withholding amount – The IRS Publication 15-T provides a wage bracket table that will help you to calculate the tentative withholding amount. You will need the adjusted wage amount and information on the employee’s filing status to do this.
  • Tax credits – Your employees may receive tax credits for dependents, which will change the payroll tax amounts. Their Form W-4 will display the total dependent tax credit amount, which you will subtract from the withholding amount.
  • Additional taxes – There may be additional taxes to withhold depending on your state, the industry, or any number of other factors. These should be entered on Form W-4, Step 4(c).

It can be rather complex to calculate employer payroll taxes and carry heavy penalties if you do it incorrectly.

How to Manage Employer Payroll Taxes

Employers need to calculate both employer payroll taxes and employee payroll taxes so they can withhold the correct amount from the employee’s paychecks. They also need to:

  • Issue W-2 Forms to their employees
  • Issue 1099-MISC forms to their independent contractors
  • File W-3 Forms with the Social Security Administration
  • File 1096 Forms with the IRS

Depending on the business, employer payroll tax amount, and the state, employers may need to file quarterly federal tax returns and make payments. The employer can file Form 944 to if they want to file their employer payroll taxes annually instead of quarterly.

Getting Support with Employer Payroll Taxes

Employer payroll taxes are complex and nuanced, with a lot of variation depending on the income bracket and the state where the business is based. Most businesses seek accounting support or financial experts to ensure that their employer payroll taxes are done correctly. Incorrect payroll taxes can attract large fines and penalties, so it is important to seek out that support if you don’t understand the accounting.

If you don’t have a finance or accounting department, you can work with an accountant who specializes in payroll administration. Alternatively, you could hire a professional employer organization (PEO). Working with a PEO means that while you are the employer in practice, the PEO is the employer for tax purposes and, therefore, handles the employer payroll taxes.

Have a quick question? We answered nearly 2000 FAQs.

See all blogs: Business | Corporate | Employment Law

Most recent blogs:

Know your rights when you experience sexual harassment in the workplace

Know Your Rights When You Experience Sexual Harassment In The Workplace

California workplace sexual harassment laws protect employees and outline rights, reporting steps, employer duties, and available legal remedies. This article explains harassment types, complaint options, retaliation rules, compensation, and recent arbitration law changes affecting California workers.

How do I know if I am exempt from overtime pay?

Check if you qualify for California overtime pay in 2026, including daily, weekly, and seventh-day rules. See exemption tests, salary thresholds, union contract exceptions, and steps to recover unpaid wages with penalties and filing deadlines.

Working Off the Clock: California Law

Working off the clock in California can trigger back pay, overtime, and penalties when employees work unpaid hours you knew about. Get examples, warning signs, and practical steps to prevent payroll issues, burnout, and costly wage claims.
Retaliation in the Workplace in California - What It Means and How It Works

Retaliation in the Workplace in California: What It Means and How It Works

Workplace retaliation in California can include firing, reduced hours, demotions, write-ups, or isolation after reporting harassment, discrimination, or safety issues. See what counts as retaliation, what doesn’t, and how to document patterns, preserve evidence, and build a timeline supporting a claim.
Is Automatic Gratuity Legal in California in 2025

Is Automatic Gratuity Legal in California in 2025?

Automatic gratuity remains legal in California in 2025, but restaurants must follow strict disclosure, payroll, and tax handling rules. This guide explains service charge requirements, IRS treatment, staff training, and practical compliance steps for restaurant owners.
How Makeup Time Works in California and When It Can Be Used

How Makeup Time Works in California and When It Can Be Used

California makeup time lets employees shift weekly hours without overtime when requests are written and limits stay within Labor Code rules. This article explains eligibility, daily and weekly caps, alternative workweeks, and employer restrictions that affect payroll compliance.
Vacation Pay in California - Rules on Accrual, Caps, and Payouts

Vacation Pay in California: Rules on Accrual, Caps, and Payouts

Get a practical overview of California vacation pay rules, including accrual methods, lawful caps, and payout obligations for departing employees. Help your company avoid wage claims by setting compliant vacation policies, tracking balances accurately, and paying unused time on separation.
Personnel File Request California - Employee Rights and Employer Duties

Personnel File Request California: Employee Rights and Employer Duties

Get a practical overview of California personnel file requests, including employee rights, employer duties, record contents, and medical privacy rules. See how deadlines, penalties, and strict documentation practices affect compliance when workers request copies of their personnel records.
Employer vs Supervisor - Differences in Roles and Responsibilities

Employer vs Supervisor: Differences in Roles and Responsibilities

Compare employer and supervisor roles, from legal responsibility to daily management, so workers see who controls policies and everyday work. Get a simple breakdown of authority, decision making, and workplace impact to clarify who to approach when issues arise.

Contact our attorney.

Please tell us your story:

0 + 1 = ?

316