Payroll taxes are mandatory contributions that employers and employees pay on wages to fund Social Security, Medicare, and unemployment insurance programs. In 2026, employers are responsible for matching employee contributions to FICA (6.2% for Social Security, 1.45% for Medicare), paying FUTA (0.6% effective rate), and remitting state unemployment taxes. The total employer cost typically adds 8% to 15% on top of every dollar of wages paid.
If you are running payroll for the first time, this guide covers every federal and state payroll tax you need to know about, including 2026 rates, wage base limits, who pays what, and the IRS forms required for each.
For a step-by-step walkthrough of getting payroll running for the first time, see our complete guide to setting up payroll for your startup.
What are the payroll tax rates for 2026?
Here is every payroll tax at a glance, including 2026 rates, wage base limits, and who is responsible for each payment.
| Tax | Rate | Who Pays | 2026 Wage Base | IRS Form | Filing Frequency |
|---|---|---|---|---|---|
| Social Security (OASDI) | 12.4% | Split: 6.2% each | $184,500 | 941/943 | Quarterly |
| Medicare (HI) | 2.9% | Split: 1.45% each | No cap | 941 / 943 | Quarterly |
| Additional Medicare | 0.9% | Employee only | Over $200,000 | 941 | Quarterly |
| FUTA | 6.0% | Employer only | $7,000 | 940 | Annual |
| SUTA / SUI | Varies by state | Employer (usually) | Varies by state | State form | Quarterly |
| Federal Income Tax | Varies | Employee (withheld) | No cap | 941 / 944 | Quarterly |
| State Income Tax | Varies | Employee (withheld) | Varies | State form | Quarterly |
The effective FUTA rate drops to 0.6% for employers who pay state unemployment taxes on time and in full. For a complete list of 2026 payroll tax deadlines, see our compliance calendar.
All of these taxes are calculated and withheld every pay period. The IRS forms listed above are how you report and remit the amounts: Form 941 is filed quarterly, Form 940 is filed annually. The withholding itself happens on every paycheck.
What is FICA tax?
FICA stands for the Federal Insurance Contributions Act. It is the law that requires employers and employees to contribute to Social Security and Medicare. FICA is not a single tax. It is the umbrella that covers two separate payroll taxes: the Social Security tax (officially called OASDI) and the Medicare tax (officially called Hospital Insurance or HI).
In 2026, the combined FICA rate is 15.3% of wages, split evenly between employer and employee. That means 7.65% comes out of the employee's paycheck and the employer pays a matching 7.65%.
For a full breakdown of how FICA works, what it funds, and what the line items on your paystub mean, see our deep-dive on [LINK: What Is FICA Tax? /blog/what-is-fica].
What is OASDI (Social Security) tax?
OASDI stands for Old-Age, Survivors, and Disability Insurance. It is the Social Security tax. You will see it on paystubs labeled as "Fed OASDI/EE" (the employee share) or "OASDI/ER" (the employer share). Both employer and employee pay 6.2% on wages up to the 2026 wage base of $184,500. Once an employee's earnings pass that cap, no more OASDI tax is withheld for the rest of the year.
The $184,500 wage base is an increase from $176,100 in 2025. That means the maximum OASDI contribution per employee in 2026 is $11,439 each from the employee and the employer.
For everything you need to know about OASDI, including how it shows up on paychecks, how self-employed individuals pay it, and who is exempt, read our complete guide: What Is OASDI Tax? The 2026 Employer Guide.
What is FUTA tax?
FUTA stands for the Federal Unemployment Tax Act. It is a tax paid entirely by employers to fund the federal unemployment insurance system. The gross FUTA rate is 6.0% on the first $7,000 of wages per employee per year. However, employers who pay their state unemployment taxes on time receive a credit of up to 5.4%, bringing the effective rate down to 0.6%.
At the 0.6% effective rate, the maximum FUTA tax per employee is $42 per year. Some states with outstanding federal unemployment loans face reduced FUTA credits, which increases the effective rate. California employers, for example, have been paying a higher effective FUTA rate due to the state's outstanding loan balance.
FUTA is reported annually on IRS Form 940, due January 31 of the following year. However, if your FUTA liability exceeds $500 during any quarter, you must make a deposit by the end of the month following that quarter.
For more on how federal and state unemployment taxes work together, see our founder's guide to state unemployment insurance taxes.
What is SUTA (state unemployment) tax?
SUTA stands for the State Unemployment Tax Act. You may also see it called SUI (State Unemployment Insurance). SUTA is a state-level payroll tax that funds unemployment benefits for workers who lose their jobs. In most states, SUTA is paid entirely by the employer. Alaska, New Jersey, and Pennsylvania are exceptions where employees also contribute.
SUTA rates and wage bases vary widely by state. New employers are typically assigned a standard rate (usually between 2% and 4%) until they build enough contribution history to receive an experience-based rate. States with higher unemployment claim activity tend to have higher rates.
Every state where you have employees requires a separate SUI registration. For a step-by-step walkthrough, see our guide on how to register for state payroll taxes. For state-specific rates and rules, check our California payroll tax guide or browse guides for all 50 states.
What are SDI and state disability taxes?
SDI stands for State Disability Insurance. A handful of states require employers to withhold SDI contributions from employee wages to fund short-term disability benefits. California, New York, New Jersey, Hawaii, Rhode Island, and Puerto Rico all have mandatory disability insurance programs.
In California, the SDI rate for 2026 is 1.3% with no wage cap, meaning every dollar of wages is subject to the assessment. New York's disability benefits are funded through small employee payroll deductions and employer contributions. Some states bundle disability insurance with paid family leave under a single program.
Multi-state employers need to track which states have these requirements. If you hire a remote employee in California while your company is based in Texas, you are responsible for California's SDI withholding. For more on how remote hiring triggers state tax obligations, see our guide on state income tax withholding for remote workers.
What about federal and state income tax withholding?
Federal income tax withholding is not technically a "payroll tax" in the narrow sense. Payroll taxes fund specific programs (Social Security, Medicare, unemployment). Federal income tax withholding is a prepayment of the employee's annual income tax liability, deducted from each paycheck based on the employee's W-4 elections.
That said, as an employer, you are responsible for calculating, withholding, and depositing federal income tax alongside FICA taxes. Both are reported on Form 941 each quarter. Getting the withholding wrong can result in penalties for the employer, even though the tax itself belongs to the employee.
State income tax withholding follows the same principle: you withhold a portion of wages and remit it to the state. Nine states have no income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming), and the remaining 41 states plus DC each have their own rates, brackets, and filing requirements.
How do payroll taxes differ from income taxes?
This is one of the most common questions employers have, and the distinction matters for how you budget and report.
Payroll taxes are flat-rate taxes applied to wages that fund specific programs. The Social Security rate is 6.2% whether you earn $40,000 or $140,000. The rate does not change with income level (though it stops at the wage base). Income taxes, by contrast, use progressive brackets. The more you earn, the higher the marginal rate on additional income.
Payroll taxes are split between employer and employee. Income taxes are the employee's sole responsibility, even though the employer handles the mechanics of withholding and depositing them. And payroll taxes have dedicated funding purposes (Social Security, Medicare, unemployment), while income taxes fund general government operations.
For employers, the practical difference is this: payroll taxes represent a real cost on top of wages (your 7.65% FICA match, your FUTA, your SUTA). Income tax withholding is money you collect from the employee and pass through to the government. Both must be deposited on time, but only payroll taxes add to your total cost per employee.
What do the abbreviations on my employee's paystub mean?
Paystubs are full of abbreviations that can confuse employees and employers alike. Here is a quick reference for the most common payroll tax codes you will see:
- Fed OASDI/EE: The employee's Social Security tax (6.2%).
- Fed MED/EE: The employee's Medicare tax (1.45%).
- Fed MED/EE Addl: The Additional Medicare Tax (0.9% on wages over $200K).
- FIT or FWT: Federal income tax withheld.
- SIT or SWT: State income tax withheld.
- SUI or SUTA: State unemployment insurance (usually employer-only, so this may not appear on the employee stub).
- SDI: State disability insurance withholding (in applicable states).
- PFL: Paid family leave withholding (in applicable states).
The "/EE" suffix means "employee share" and "/ER" means "employer share." If an employee asks you why they see "Fed OASDI/EE" on their check, it is their 6.2% Social Security contribution.
How are payroll taxes calculated?
Calculating payroll taxes for each pay period follows a consistent process. Start with the employee's gross wages for the period. Apply the Social Security rate (6.2%) up to the annual wage base of $184,500. Apply the Medicare rate (1.45%) on all wages. If the employee's cumulative wages for the year exceed $200,000, apply the Additional Medicare Tax (0.9%) on wages above that threshold. Calculate the employer's matching FICA contribution (6.2% Social Security + 1.45% Medicare). Apply the federal income tax withholding based on the employee's W-4 elections and IRS Pub 15-T tables. Apply any state income tax, SDI, PFL, or local tax withholding based on the employee's work location.
The employer separately calculates FUTA (0.6% effective on first $7,000) and SUTA (state-specific rate on state-specific wage base) for each employee.
Payroll software handles these calculations automatically. For a comparison of platforms that automate this for startups, see our guide to the best payroll software for startups in 2026.
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Frequently asked questions about payroll taxes
Who pays payroll taxes?
Both employers and employees pay payroll taxes. FICA taxes (Social Security and Medicare) are split 50/50. Federal unemployment tax (FUTA) and state unemployment tax (SUTA) are generally employer-only. Federal and state income tax withholding comes entirely from the employee's wages, though the employer is responsible for calculating and depositing it.
How much do payroll taxes cost an employer?
At a minimum, employers pay 7.65% of each employee's wages in FICA taxes (6.2% Social Security + 1.45% Medicare), plus FUTA (roughly $42 per employee per year at the 0.6% effective rate), plus SUTA (varies by state and employer experience rating). For a startup employee earning $100,000, the employer's payroll tax cost is approximately $8,000 to $10,000 per year, depending on the state.
What happens if I miss a payroll tax deadline?
The IRS charges a failure-to-deposit penalty ranging from 2% to 15% depending on how late the deposit is. The failure-to-file penalty for Form 941 is 5% per month, up to 25%. State penalties vary. For a full list of due dates, see our 2026 payroll tax deadline calendar.
Do I need to pay payroll taxes in every state where I have employees?
Yes. Every state where an employee physically works creates a payroll tax obligation, regardless of where your company is headquartered. Even a single remote employee in a new state means you need to register for that state's unemployment insurance and (in most cases) income tax withholding. See our guide on state income tax withholding for remote workers for the full breakdown.
Are payroll taxes the same as income taxes?
No. Payroll taxes are flat-rate taxes that fund specific programs (Social Security, Medicare, unemployment insurance). Income taxes use progressive brackets and fund general government operations. Employers must withhold and deposit both, but only payroll taxes represent an additional cost to the employer beyond the employee's wages.
