Payroll Tax Rates (2024 Guide) (2024)

CEPF®, Small Business Expert Writer, author of YOU DON'T NEED A BUDGET, Editor

Updated: Jan 5, 2024, 9:01am

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In most cases, the federal payroll tax rate is about 15.3%, with the employee covering 7.65% and the employer covering 7.65%. If you’re self-employed—as a sole proprietor or business owner—you’re responsible for the full 15.3%, usually referred to as self-employment tax.

Potential additional taxes and credits based on your circ*mstances could change what your business is responsible for paying.

Employers and employees pay federal employment taxes that include payments toward Social Security, Medicare and unemployment insurance.

Social Security and Medicare taxes are collectively known (and may appear on paycheck stubs) as FICA taxes, for the Federal Insurance Contributions Act included in the 1930s New Deal legislation that introduced Social Security. Unemployment tax is known as FUTA tax for the Federal Unemployment Tax Act of 1939 that introduced that benefit.

The rates have gone up over time, though the rate has been largely unchanged since 1992. Federal payroll tax rates for 2024 are:

• Social Security tax rate: 6.2% for the employee plus 6.2% for the employer
• Medicare tax rate: 1.45% for the employee plus 1.45% for the employer
• Additional Medicare: 0.9% for the employee when wages exceed $200,000 in a year
• FUTA tax rate: 6% for the employer on the first $7,000 paid to the employee

When your business files a tax return each year, you’ll include a form showing you paid state unemployment taxes, and that can qualify you for a tax credit in most cases. The credit can bring the FUTA tax rate down as low as 0.6%. Learn more about the FUTA tax from the IRS, and work with a qualified tax preparer to submit the correct forms.

In addition to the federal taxes, you may be responsible for state payroll taxes. The most common state payroll tax pays for state unemployment insurance (SUTA tax), of which you cover 100% as the employer.

You pay unemployment insurance based on what tax agencies call a wage base, which is a cap on the wages subject to a particular tax. The wage base and tax rates vary by state. Check with your state’s department of workforce development or other office that manages unemployment insurance to find your rates.

You might make state unemployment tax payments along with payroll or as a separate payment each month or quarter, depending on the processes available in your state.

Some states collect additional payroll taxes for things such as workforce development, disability insurance and transit. Consult an accountant in your state to learn which taxes your business is responsible for paying or deducting from payroll.

You may be subject to further payroll taxes based on the Zip code, county or municipality where your business is based. These taxes can pay for various local projects, such as transportation, that support business and production. They could be taxes you’re responsible for as an employer, taxes the employee is responsible for or both.

Check with your local tax agencies and consult a local accountant to understand your local tax responsibilities.

The Social Security Administration sets an annual maximum limit on the amount of any employee’s wages that’s subject to the Social Security tax. This is called the contribution and benefit base, and it changes annually. For 2024, the maximum wage amount subject to Social Security tax is $147,000.

There’s no maximum taxable limit for Medicare tax, so you and the employee would continue to split the 2.9% tax on earnings over $147,000, even though those earnings wouldn’t be subject to the Social Security tax.

The wage base subject to federal and state unemployment tax also changes annually. The amount of wages subject to FUTA and SUTA taxes is capped based on the wage base for each.

Generally, when people refer to “payroll taxes,” they’re talking about FICA and FUTA taxes and additional state or local taxes. The other major tax you file when you run payroll as an employer is employee income tax.

You’re not responsible for paying any portion of an employee’s federal, state or local income tax, but you’re responsible for deducting it from their paycheck, and reporting and sending it to the IRS and other tax agencies.

You file employee income taxes based on the W-4 they filled out when you hired them. This form tells you exactly how much to withhold from each paycheck—you’re not responsible for whether the amount withheld covers the employee’s full tax liability or not.

Along with your tax responsibilities, you may pay other costs at payroll, based on legal requirements or optional benefits your company offers. These might include:

• Workers’ compensation insurance. States set requirements for workers’ comp insurance. Whether you have to pay and how much is usually based on how many employees you have in the state, with three being a common threshold.
• State disability insurance. California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico have mandatory disability requirements for employers to support programs that pay a portion of worker wages for work missed due to caregiving or a disability.
• Paid leave. If your company offers paid time off for personal days, vacation, sick days, parental leave or any other purpose, these have to be recorded as part of your payroll process. Paychecks generally list compensation that’s paid as part of an employee’s paid leave benefits, even when the employee’s pay is the same as normal.
• Health care costs. Companies with more than 50 employees are generally required to provide a health insurance plan for employees under the Affordable Care Act. You may also choose to provide a plan if you’re a smaller employer. At payroll, you’ll deduct any portion of premiums the employee pays, and you’ll be responsible for the employer portion.
• Retirement plan contributions. If your company sponsors an employee retirement plan, you have to manage contributions with payroll. You’ll deduct employee contributions from their pay and be responsible for any employer match you offer.
• Reimbursem*nts and stipends. If you offer a stipend (for example, for a home office) or reimbursem*nts (such as those for work-related travel), you generally process those with payroll and include them with an employee’s paycheck. Income tax rates for reimbursem*nts and stipends are different from those for regular income, so take care to classify them correctly.
• Extra withholding. If an employee indicated an additional amount to withhold each pay period on their W-4, you’ll withhold this amount and include it with their federal income tax payment.
• Other benefits. You’ll manage other benefits with payroll as well, including charity matching and deductions, HSA contributions, wellness programs and other employee benefits. Depending on the benefit, you may deduct employee contributions, make payments into an associated account or include a stipend with the employee’s paycheck.

Further reading:Best Tax Software for Small Business

The IRS charges a late fee if you don’t deposit the employment tax you owe on time, called a Failure to Deposit Penalty. You’ll receive a notice from the IRS if you owe a penalty.
Payroll tax penalties are:

• One to five days: 2% of unpaid amount
• Six to 15 days: 5% of unpaid amount
• More than 15 days: 10% of unpaid amount
• More than ten days after your first notice: 15% of unpaid amount

Bottom Line

Payroll taxes include the employment taxes you and your employees pay for federal and state programs, including Social Security, Medicare, unemployment insurance and disability benefits. They also include income tax deducted from your employees’ pay and other payroll tax deductions, such as those for health care benefits and paid leave.

The federal employment tax rate is 15.3%, with the employer paying 7.65%. That, plus the cost of workers’ comp, benefits and state and local requirements, make up the cost of having your employee in addition to the salary or wages you pay them.