Employee and employer taxes

Payroll taxes refers to the taxes that employers withhold from their employees' paychecks and also the taxes that employers pay to state, federal, and local tax agencies for payroll tax. 

Employee Taxes 

An employee’s gross pay refers to the total amount of their earnings before taxes and other deductions are subtracted from the pay. The remaining amount after taxes and deductions is referred to as ‘net pay’. Some common employee taxes are listed below:

Federal Income Tax: This federal tax is based on an employee’s income in layers called tax brackets. Employers are responsible for withholding federal income tax from their employees' paychecks based on the information provided on the employee's Form W-4. 

Social Security Tax: The Social Security tax rate is 6.2% for both employees and employers on wages up to a certain cap, which is $168,600 for 2024.

Medicare Tax: The Medicare tax is another federal payroll tax paid by both the employee and employer. The Medicare tax rate is 1.45% for both employees and employers, with no cap on wages.

Additional Medicare Tax: Employees earning above a certain threshold may be subject to an additional Medicare tax of 0.9% to wages exceeding $200,000.

State income tax: Similar to federal income tax, it is based on an employee’s income. The tax rate calculations vary based on each state. Nine states do not have income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

Paid Family and Paid Medical Leave: Some states have laws that mandate that employees and/or employers contribute to a state leave fund. 

Local taxes: In some cases, there may also be state or local taxes calculated on an employee’s gross income. 

Employer Taxes

There are employer taxes calculated on employee payrolls. Some common employer taxes are listed below:

Federal Unemployment Tax (FUTA): The FUTA tax rate is 6% on the first $7,000 of wages paid to each employee during the calendar year. However, employers can receive a credit of up to 5.4% against their FUTA tax liability if they pay state unemployment taxes. 

State Unemployment Tax (SUI or SUTA): State unemployment tax rates vary by state. Each state assigns a rate to a business and this rate can change year over year. 

Social Security Tax: The Social Security tax rate is 6.2% for both employees and employers on wages up to a certain cap, which is $168,600 for 2024.

Medicare Tax: The Medicare tax is another federal payroll tax paid by both the employee and employer. The Medicare tax rate is 1.45% for both employees and employers, with no cap on wages.

Paid Family and Paid Medical Leave: Some states have laws that mandate that employees and/or employers contribute to a state leave fund. 

Local taxes: In some cases, there may also be state or local payroll taxes to be paid by the employer.

Additional payroll tax information

It's important to note that there may be other deductions, such as certain voluntary deductions like retirement contributions or health insurance premiums. 

Self-employed individuals are responsible for paying the employer and employee portions of Social Security and Medicare taxes, collectively referred to as self-employment tax.