When you decide to hire your first employee, or even your fiftieth, the excitement of growing your team is often met with a bit of a headache: the paperwork. One of the most common questions new business owners ask is exactly how much payroll tax do employers pay to keep their doors open and their staff legally employed. It is not just about the salary you agreed upon during the interview. There is a whole world of hidden costs that sit on top of that hourly rate or annual salary.
Think of payroll taxes like the extra ingredients in a recipe. You have the main dish, which is the wage, but the taxes are the seasoning and the sides that make the whole meal complete in the eyes of the government. In the United States, these taxes are mandatory. They fund big programs like Social Security and Medicare, and they provide a safety net if someone loses their job.
Understanding these costs is vital for your budget. If you only plan for the gross pay, you might find yourself short on cash when tax day rolls around. Here is a simple breakdown of what those costs look like in 2026.
The FICA Match: Social Security and Medicare
The biggest chunk of employer payroll taxes falls under an act called FICA, which stands for the Federal Insurance Contributions Act. This is a shared responsibility. Both the employee and the employer pay into it, almost like a 50/50 split.
Social Security Tax
For 2026, the Social Security tax rate for employers is 6.2%. You calculate this based on the employee’s gross pay. However, there is a limit. For 2026, the wage base limit has increased to $184,500. This means once an employee earns more than that amount in a single year, you stop paying the 6.2% on any additional dollars they earn.
Medicare Tax
Medicare is the other half of the FICA duo. The employer rate is 1.45%. Unlike Social Security, there is no wage cap for Medicare. You pay this 1.45% on every single dollar your employee earns, no matter how high their salary goes. It is important to note that while high-earning employees pay an Additional Medicare Tax of 0.9% on income over $200,000, employers do not have to match that extra bit. Your responsibility stays at the flat 1.45%.
When you add these two together, the standard FICA cost for most employers is 7.65% of their total payroll.
Federal Unemployment Tax (FUTA)
Next on the list is FUTA. This tax is slightly different because it is paid only by the employer. Your employees do not see this taken out of their checks, and they do not contribute to it at all.
The standard FUTA tax rate is 6.0% on the first $7,000 of each employee’s wages per year. However, almost every business qualifies for a massive credit. If you pay your state unemployment taxes on time, the federal government gives you a credit of 5.4%. This brings your actual FUTA tax rate down to just 0.6%.
In plain math, this means most employers only pay $42 per employee, per year to the federal government for unemployment insurance. It is a small amount, but it is a strict requirement that you must report annually.
State Unemployment Tax (SUTA)
While FUTA is federal, SUTA is the state version. Every state has its own rules, its own tax rates, and its own wage base, which is the amount of salary that is taxable.
How SUTA Rates are Determined
States usually give new businesses a New Employer Rate for the first few years. After that, your rate changes based on your experience. If you have a lot of former employees filing for unemployment benefits, your SUTA rate might go up. If you have a stable team and rarely have claims, your rate stays lower.
In 2026, these rates can vary wildly. For example, a state like Washington might have a much higher wage base than a state like Texas. It is one of the most variable parts of calculating how much payroll tax do employers pay because it depends entirely on where your workers are located and how often you hire and fire staff.
State and Local Specific Taxes
Beyond the big federal and state categories, some areas have unique taxes that fund specific local needs. These are often called Employer-Paid Taxes or Local Assessments.
- Disability Insurance: A few states, like California and New Jersey, have disability insurance programs. In some cases, the employer might chip in, though these are often employee-funded.
- Transit Taxes: Cities like Portland or regions in New York sometimes charge a small tax to employers to fund public buses and trains.
- Paid Family Leave: More states are starting programs that provide paid time off for new parents or sick family members. These are often funded by small percentages of payroll, sometimes split between you and the worker.
The Difference Between Withholding and Paying
It is easy to get confused between the taxes you withhold and the taxes you pay out of your own pocket.
When you look at a paycheck, you see Federal Income Tax and State Income Tax being taken out. This is not your money, and it is not an extra cost to you. You are simply acting as a middleman for the government. You take that money out of the employee’s pay and send it to the IRS.
The taxes we are talking about today—the FICA match, FUTA, and SUTA—are the ones that come directly out of your business bank account over and above the salary. If you pay someone $1,000, they might take home $800 after their taxes, but it actually costs you about $1,080 after your taxes are added in.
2026 Payroll Compliance and Reporting
The rules for payroll are not set in stone. Every year, the government adjusts thresholds and rates. In 2026, we have seen significant changes due to new legislation.
New Reporting Thresholds
One big change for 2026 is that the threshold for reporting certain payments has increased. While it used to be $600, you now generally only need to file certain information returns if the payments reach $2,000. This simplifies things for businesses that use a lot of small-scale contractors.
Modern Savings Accounts and Deductions
The year 2026 also introduced new types of employee savings vehicles. Employers can now contribute to certain specialized accounts, and this money is often excluded from the employee’s taxable income. Additionally, there are new ways to report qualified overtime and qualified tips that can provide tax relief for workers, though you as the employer generally still pay the FICA match on those amounts to ensure their future benefits remain funded.
The True Cost of an Employee (Labor Burden)
When you calculate the Labor Burden, you are looking at the total cost of keeping an employee. This includes:
- Gross Wages
- Employer Payroll Taxes (roughly 8% to 10% on average)
- Workers’ Compensation Insurance
- Benefits like health insurance or retirement matches
- Paid Time Off and sick leave
For a quick estimate, many business owners use a rule of thumb that an employee actually costs about 1.2 to 1.4 times their base salary. So, a $50,000-a-year employee might actually cost your business $65,000 or more when all is said and done.
Managing Payroll Tax Complexity with Lucia & Co. CPAs Inc.
Trying to keep track of shifting wage bases, SUTA experience ratings, and new federal reporting rules for 2026 can feel like a full-time job. You started your business to follow your passion, not to spend your weekends staring at tax forms and spreadsheets. That is where professional help makes all the difference. At Lucia & Co. CPAs Inc., we take the mystery out of your tax obligations. We help you calculate exactly what you owe, ensure you are taking advantage of every available credit, and keep you compliant so you never have to worry about a surprise bill or an audit. If you are tired of wondering whether you are doing your payroll correctly, reach out to Lucia & Co. CPAs Inc. today. Let our team of experts handle the numbers so you can get back to growing your business.
