As a business owner, payroll taxes are like a shadow — they may fade into the background temporarily, but they’re always there. And, if you’re not fully prepared, they’ll sneak up on you — bringing unexpected costs, compliance headaches, and potential penalties that could throw your business off balance for months.

Even with the best bookkeeping tools or software (it’s 2025 – there’s really no excuse for not utilizing the best software!) the process of managing payroll taxes can feel like walking a tightrope. One wrong step — whether it’s a missed payment or miscalculation — and you could find yourself facing hefty penalties. 

Payroll taxes play a critical role in funding essential programs, like Social Security, Medicare, and unemployment benefits, and as an employer, your contributions help make these systems work. 

So, how much do employers really pay in payroll taxes, how are these amounts calculated, and where do these contributions go? Let’s unravel the mystery and fill you with the knowledge and confidence you need to handle your company’s payroll taxes like a pro.

What Taxes Do Employers Pay?

Much like employees, employers must pay payroll taxes too. As a business owner, understanding these taxes is of the utmost importance — not just for compliance but for managing your overall payroll costs. Payroll taxes are essentially the costs of employing people and include taxes shared between employers and employees as well as those solely paid by employers. Here’s a breakdown of the key taxes employers are responsible for.

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Social Security Tax

The Social Security tax helps fund benefits for retirees, disabled individuals, and survivors. The total tax rate is 12.4%, split evenly between employers and employees. Employers are responsible for paying 6.2% of each employee’s wages up to the annual wage cap, which is $176,100 for 2025.

Medicare Tax

Medicare taxes provide hospital insurance for individuals older than 65 and those eligible due to disabilities. Employers contribute 1.45% of each employee’s wages, matching the 1.45% deducted from each employee’s paycheck. High-earning employees (those making more than $200,000 annually) may also incur an additional 0.9%, but employers are not required to match this portion.

Federal Unemployment Tax (FUTA)

The Federal Unemployment Tax Act (FUTA) funds unemployment programs that assist workers who lose their jobs. This tax is paid exclusively by employers at a rate of up to 6% on the first $7,000 paid to each employee annually. However, employers can often claim credits for state unemployment contributions, which may lower the effective FUTA rate to 0.6%.

State Unemployment Tax (SUTA)

State unemployment taxes vary widely by state. In most states, this is an employer-only tax that funds state unemployment benefit programs, though some states also require employees to contribute. Employers should consult their state’s Department of Labor for the most up-to-date rates and regulations.

How to Calculate Federal Payroll Tax Withholdings

Unlike flat-rate FICA taxes, federal income taxes depend on various factors, including an employee's wages, deductions, filing status, and any credits or additional withholdings they request. Here’s a breakdown of how to calculate federal payroll tax withholdings.

1. Adjust the Employee’s Wage Amount

The first step is to determine an employee’s adjusted wage amount. This adjustment may be necessary if a worker has additional income or deductions. For example, if an employee earns income from other sources (like a second job), divide that amount by the number of pay periods in the year and add it to their total wages. Likewise, if the employee claims deductions other than the standard deduction, subtract this amount from the total wages.

2. Determine Tentative Withholding Using IRS Wage Bracket Tables

Once you have the adjusted wage, consult the IRS wage bracket tables in Publication 15-T to find the tentative withholding amount. The tables are organized by filing status (single, married, head of household) and adjusted wages, making it easy to find the correct amount based on the employee’s situation. For example, if an employee earns $900 per week and is filing as head of household, the tentative withholding amount might be $60.

3. Account for Tax Credits

Since 2020, employees no longer claim allowances for dependents. Instead, they indicate the total credit amount for dependents in Step 3 of Form W-4. To adjust the withholding amount, divide the total credit by the number of pay periods and subtract it from the tentative withholding.

4. Add Additional Withholding

Employees may request additional withholding for federal taxes in Step 4(c) of Form W-4. If they do, add this amount to the tentative withholding. This step ensures employees who want extra withholding can have it deducted directly from their paychecks.

For employees who earn more than $100,000 per year, the IRS’s percentage method might be required instead of the wage bracket method. It's important to note that federal tax rates and tables can change each year, so always consult the IRS website or a tax professional for the latest information. 

A Working Example of Payroll Tax WIthholding 

Let’s walk through an example of how federal payroll tax withholding would be calculated for an employee named Jim. Jim is married, has two children, and his spouse works as well. Jim earns $1,000 per week. Here's how his tax withholding would be determined.

Step 1: Adjust Jim's Wage Amount

Since Jim has no additional income from investments or retirement and he has chosen the standard deduction on his Form W-4, there’s no need to adjust his wages. His taxable wages remain at $1,000 per week.

Step 2: How Much Should You Withhold?

Next, consult the IRS wage bracket tables in Publication 15-T for a married employee filing jointly. For Jim, who checks the box in Step 2 of Form W-4 (indicating he has a spouse who works), the tentative withholding amount is $88.

Step 3: Incorporate Tax Credits

Jim has two children, so he qualifies for tax credits. The total amount of tax credits he can claim is $4,000. To determine how much of this credit should be applied to his weekly withholding, divide the credit by the number of pay periods in the year (52 weeks).

$4,000 ÷ 52 = $76.92

Now, subtract this amount from the tentative withholding of $88.

$88 - $76.92 = $11.08

So, after accounting for the tax credits, Jim’s withholding is reduced to $11.08 for this pay period.

Step 4: Add Any Additional Withholding

Jim has requested that an additional $1,000 be withheld for taxes throughout the year. To calculate how much that is per pay period, divide the additional withholding by 52.

$1,000 ÷ 52 = $19.23

Now, add this amount to the adjusted withholding amount of $11.08.

$11.08 + $19.23 = $30.31

Thus, Jim's final withholding amount for the week will be $30.31.

Employer's Payroll Tax Responsibility

In addition to withholding taxes from Jim’s paycheck, the employer also has payroll tax obligations.

FICA Matching: The employer must match Jim’s FICA taxes (Social Security and Medicare). Assuming Jim earns $50,000 per year, his employer will match 6.2% for Social Security and 1.45% for Medicare on his gross wages.

Social Security: $50,000 x 6.2% = $3,100

Medicare: $50,000 x 1.45% = $725

So, for Jim’s annual salary, the employer’s FICA obligation would be $3,825.

Federal Unemployment Tax (FUTA): The employer must pay a federal unemployment tax rate of 0.6% on the first $7,000 of Jim’s earnings. Since Jim has earned less than $7,000 so far, the employer pays:

$7,000 x 0.6% = $42

State Unemployment Tax (SUTA): State unemployment taxes vary by state. In Florida, the state unemployment tax rate is 2.7%. The employer’s state unemployment tax on Jim’s semi-monthly gross pay of $2,083.33 is:

$2,083.33 x 2.7% = $56.17

In total, Jim’s employer would pay a total of:

FICA taxes: $175.31 (Social Security + Medicare)

FUTA tax: $42 (Federal Unemployment)

SUTA tax: $56.17 (State Unemployment)

In total, the employer's payroll tax obligations for Jim would be $273.48.

When Must Employers Pay Payroll Taxes?

As an employer, staying on top of payroll tax deposit deadlines is crucial to avoid penalties and ensure compliance. Depending on your business size, tax liability, and the type of taxes involved, the schedule for depositing payroll taxes can vary. Here's a breakdown of when payroll taxes are due and the forms you’ll need to file.

Payroll Tax Deposit Schedules

Employers must remit payroll taxes to the IRS on time to avoid penalties. The deposit schedule depends on the amount of taxes owed during the lookback period, not how often employees are paid. There are two main deposit schedules:

• Monthly Deposits: If your business is on a monthly deposit schedule, your payments are due by the 15th of the following month. For example, if you pay employees in March, the tax deposit is due by April 15.
• Semi-Weekly Deposits: If your business is required to deposit taxes more frequently, taxes must be deposited either:
• By the following Wednesday for paychecks distributed Wednesday to Friday.
• By the following Friday for paychecks distributed Saturday to Tuesday.
• In some cases, if more than $100,000 in taxes is withheld on any given day, the deposit must be made by the next business day.

Payroll Tax Forms Employers May Need to File

There are several forms that employers must file to report payroll taxes. These include:

Form 941: A quarterly federal tax return that reports withholding and the employer’s share of FICA.

Form 940: The annual federal unemployment tax return.

Form 943: Used by employers who pay agricultural employees to report taxes annually.

Form 944: A simplified return for small businesses that report taxes on an annual basis.

Form 945: Used to report non-payroll income tax withholdings, such as pension distributions. Additionally, companies must file Form W-2 to report employee wages and tax withholdings, along with Form W-3, which summarizes all the W-2s for submission to the Social Security Administration.

Unemployment Tax Deposit Deadlines

Unemployment taxes follow a different schedule. FUTA deposits are due quarterly, and the deadline is the last day of the first month following the end of the quarter. Here’s when FUTA taxes are due:

Q1 (January - March): Due by April 30;

Q2 (April - June): Due by July 31;

Q3 (July - September): Due by Oct. 31; and

Q4 (October - December): Due by Jan. 31.

If the total FUTA tax due is $500 or less, it can be carried over to the next quarter.

Avoiding Late Payment Penalties

Failing to deposit payroll taxes on time can result in penalties. The penalty structure is as follows.

One to five days late: 2% of the unpaid amount;

Six to 15 days late: 5% of the unpaid amount;

More than 15 days late: 10% of the unpaid amount; and

More than 10 days after first notice: 15% of the unpaid amount. 

Streamline Your Payroll Process with the Right Tools

In conclusion, managing payroll taxes efficiently is essential for the smooth operation of your business. But it’s not just about keeping up with tax deadlines; it’s about integrating tools that simplify the entire process. 

The proper payroll, employee scheduling, and time tracking software, such as OnTheClock, can help streamline payroll management and ensuring compliance. With the right software, you can automate tax calculations, track hours accurately, and stay on top of deadlines, reducing the risk of errors and penalties. When your data is organized and accessible, taxes are much easier to manage, ensuring timely and accurate filings while allowing you to focus on growing your business with confidence. 

OnTheClock allows you to work smarter, not harder, ensuring the right people are in the right places, earning proper wages, ensuring your books are accurate and under control. By leveraging OnTheClock, you’ll not only stay compliant but also save time and reduce the administrative burden that taxes bring, allowing you to focus on what matters most: growing your business.