Payroll Taxes Explained (2026): FICA, FUTA, SUTA, and Withholding

Payroll taxes are the taxes tied to wages — Social Security and Medicare (together called FICA), federal and state income tax withholding, and federal and state unemployment taxes (FUTA and SUTA). Some are split between employer and employee, some are paid only by the employer, and income tax withholding comes entirely from the employee’s pay. As the employer, you withhold the employee portions from each paycheck, add your own share, deposit it all with the IRS and your state, and file the forms.

This is the part of payroll that trips people up, because “payroll tax” is really five different taxes with different rules. Here’s each one, who pays it, and how it gets reported.

The two categories of payroll tax

It helps to split payroll taxes into two buckets. Withholding taxes come out of the employee’s pay — you’re just the collector. Employer taxes are the company’s own expense on top of wages. Some taxes (FICA) appear in both buckets because they’re shared.

FICA: Social Security and Medicare

FICA is the big one, and it’s shared 50/50. Social Security is 6.2% from the employee and a matching 6.2% from you, applied to wages up to an annual wage base limit (the limit rises most years — check the current IRS figure). Medicare is 1.45% each, with no wage cap. High earners pay an extra 0.9% Additional Medicare Tax above a threshold, but that surtax is employee-only — you don’t match it.

So for an employee, you withhold 7.65% (6.2% + 1.45%) and you owe another 7.65% out of your own pocket.

Federal and state income tax withholding

This is employee money only — you withhold it but owe none yourself. The amount comes from the employee’s Form W-4 and the IRS withholding tables, which factor in pay, filing status, and any adjustments the employee elects. Most states have their own income tax and a parallel withholding form; a handful of states have no income tax at all, so you withhold nothing for them.

Unlike FICA’s flat rates, income tax withholding is graduated and varies per employee.

FUTA: federal unemployment tax

FUTA funds federal unemployment programs and is paid entirely by the employer — never withheld from employees. The headline rate is 6.0% on the first $7,000 of each employee’s wages, but if you pay your state unemployment tax on time you get a credit that typically drops the effective FUTA rate to 0.6%. You report FUTA annually on Form 940.

SUTA: state unemployment tax

SUTA (sometimes called SUI) is your state’s unemployment tax, also generally employer-paid. Unlike the fixed federal taxes, your SUTA rate is experience-rated — new employers get an assigned starting rate, and it goes up or down over time based on how many former employees have claimed unemployment. Each state sets its own rate range and wage base, so this one varies the most.

Deposit schedules

Withheld and matched payroll taxes don’t sit in your account — you deposit them with the IRS on a schedule it assigns you:

• Monthly depositors deposit by the 15th of the following month
• Semi-weekly depositors deposit within a few days of each payday

The IRS tells you which schedule applies based on your prior tax liability (a “lookback period”). FUTA is deposited quarterly once you cross a threshold. Late deposits incur penalties that scale with how late you are, so this is not a deadline to wing. For the broader process, see how to do payroll.

The forms you’ll file

Reporting ties it all together:

• Form 941 — filed quarterly, reporting wages plus the income tax, Social Security, and Medicare you withheld and owe
• Form 940 — filed annually, reporting FUTA tax
• State withholding and unemployment returns — on your state’s schedule
• Form W-2 — given to each employee and filed with the SSA at year-end (due January 31)
• Form 1099-NEC — issued to contractors for non-employee compensation (also January 31)

Making payroll easier with Gusto

Calculating five different taxes, tracking two deposit schedules, and filing the right forms on time is exactly the kind of error-prone busywork software exists to kill. I use Gusto because it’s full-service: it automatically calculates the employee and employer shares of every payroll tax, withholds the right amount, deposits it with the IRS and your state on schedule, and files the 941, 940, state returns, and year-end W-2s and 1099s for you. It’s a flat $49/month plus $6 per employee, with unlimited payroll runs, or $35/month (free for six months) if you pay only contractors.

There’s also a referral offer: through a referral link, after your first paid payroll you get a Visa gift card — $100 for fewer than 10 employees, $200 for 10 or more — plus three months free, with no coupon to enter. If you’re handling these taxes for the first time, letting software own the deposits and filings is the single best risk reduction you can buy. Compare tools in our best payroll software guide.

Frequently asked questions

What are payroll taxes in simple terms?

Payroll taxes are the taxes on wages: Social Security and Medicare (FICA), federal and state income tax withholding, and federal and state unemployment taxes (FUTA and SUTA). Some are shared by employer and employee, some are employer-only, and income tax is withheld from the employee.

What is the difference between FICA and income tax withholding?

FICA (Social Security and Medicare) is a flat-rate tax shared 50/50 between employer and employee. Income tax withholding is graduated, based on the employee’s W-4, and comes entirely out of the employee’s pay — the employer owes none of it.

Who pays FUTA and SUTA — the employer or employee?

Both are paid by the employer and are never withheld from employees. FUTA is federal (effectively 0.6% after the state credit on the first $7,000 of wages); SUTA is your state’s experience-rated unemployment tax.

How often do I deposit payroll taxes with the IRS?

The IRS assigns you a monthly or semi-weekly deposit schedule based on your past tax liability. You must follow it exactly — late deposits trigger penalties even if you later pay in full. FUTA is deposited quarterly above a threshold.

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