What Are Payroll Taxes?
By BRIX Editorial Team · Updated
Payroll taxes are the taxes an employer withholds from employees' wages and pays on top of them. In 2026 that means federal income tax withholding, Social Security at 6.2% each from employer and employee on wages up to $184,500, Medicare at 1.45% each, federal unemployment tax, and state unemployment and income taxes.
Key takeaways
- Some payroll taxes come out of the employee's check (income tax, their half of FICA). Others are your cost on top of wages (your half of FICA, FUTA, state unemployment).
- For 2026, the federal employer cost on a $58,000 wage is about $4,479: Social Security, Medicare and FUTA, before state taxes and workers' comp.
- Withheld taxes are trust fund money. The IRS can assess a penalty of 100% of unpaid trust fund taxes against the people responsible.
- Deposits are made electronically, monthly or semiweekly depending on your lookback-period total, and reported quarterly on Form 941.
- 2026 Forms W-2 are due to employees and the Social Security Administration by February 1, 2027.
Which payroll taxes does an employer pay in 2026?
When you put a technician on W-2 payroll, federal payroll taxes come in two groups: what you withhold from their pay and send in for them, and what you pay yourself as the employer. Here are the 2026 federal figures from IRS Publication 15.
| Tax | Employee share (withheld) | Employer share (your cost) | Wage limit |
|---|---|---|---|
| Social Security | 6.2% | 6.2% | First $184,500 of wages per employee |
| Medicare | 1.45% | 1.45% | No limit |
| Additional Medicare Tax | 0.9% on wages over $200,000 | None | Withhold once wages pass $200,000 in the calendar year |
| Federal income tax | Based on the employee's Form W-4 and IRS Pub. 15-T tables | None | None |
| FUTA (federal unemployment) | None | 6.0%, minus up to 5.4% credit for state unemployment tax paid (usually 0.6% net) | First $7,000 of wages per employee |
| Supplemental wages (bonuses) | Flat 22% federal income tax option; 37% on supplemental wages over $1 million | None | None |
Social Security and Medicare together are called FICA: 7.65% from the employee and 7.65% from you, until Social Security stops at the wage base. State payroll taxes sit on top: state unemployment insurance (rates are assigned by your state), state income tax withholding in most states, and in some states disability or paid-leave programs. Check your state's tax guide.
How much do payroll taxes cost per employee?
Employer cost = (W × 6.2%) + (W × 1.45%) + (FUTA wages × 0.6%)
- W
- the employee's 2026 wages (Social Security part capped at $184,500)
- FUTA wages
- the first $7,000 of wages, assuming the full 5.4% state credit
How and when do you deposit payroll taxes?
All federal tax deposits must be made electronically, through EFTPS, IRS Direct Pay or your IRS business tax account. Your deposit schedule depends on how much employment tax you reported in the lookback period, the 12 months from July 1 to June 30 before the current year (for 2026, July 1, 2024 through June 30, 2025).
| Situation | Rule |
|---|---|
| Lookback total of $50,000 or less | Monthly depositor: deposit each month's taxes by the 15th of the following month |
| Lookback total over $50,000 | Semiweekly depositor: paydays Wednesday–Friday are due the following Wednesday; paydays Saturday–Tuesday are due the following Friday |
| $100,000 or more accumulated on any day | Deposit by the next business day, whatever your schedule |
| Less than $2,500 for the quarter (or prior quarter, under the rules) | You may pay with a timely filed Form 941 instead of depositing |
| FUTA liability of $500 or less for a quarter | No deposit needed yet; carry it forward to the next quarter |
Which payroll tax forms do you file?
| Form | What it reports | When it's due |
|---|---|---|
| Form 941 | Wages, withheld income tax and both halves of FICA for the quarter | Last day of the month after the quarter ends (April 30, July 31, October 31, January 31); 10 extra days if all deposits were made on time |
| Form 940 | Annual FUTA tax | January 31 for the prior year (the 2025 Form 940 was due February 2, 2026; February 10 if all FUTA was deposited on time) |
| Form W-2 and W-3 | Each employee's wages and withholding for the year | 2026 forms are due to employees and the SSA by February 1, 2027 |
| Form W-4 | Employee's withholding choices | Collect from each new hire; you keep it, it isn't filed |
What is the trust fund recovery penalty?
Income tax and the employee's share of FICA that you withhold are held "in trust" for the government. If they're withheld but not paid over, the IRS can assess the trust fund recovery penalty, which Publication 15 says is "100% of the unpaid trust fund tax," against any responsible person who willfully fails to collect, account for or pay it. That can include the owner personally, even if the business is an LLC or corporation. Using withheld payroll taxes to cover a slow month is the most expensive loan a contractor can take.
Payroll taxes vs. self-employment tax
If you're a sole proprietor or partner, you don't pay payroll tax on your own draws. You pay self-employment tax instead: 12.4% Social Security and 2.9% Medicare on 92.35% of your net earnings, which is the employer and employee halves combined. If your business is an S corporation, you're an employee of it, so your salary runs through payroll like any tech's. That's the logic behind S corp vs. LLC and why the IRS requires a reasonable salary.
Payroll taxes by trade: what changes
| Trade | Watch for |
|---|---|
| HVAC and plumbing | Spiffs and commissions on top of hourly pay are supplemental wages and need withholding |
| Roofing | Seasonal crews: every W-2 laborer counts toward FUTA's $7,000 base, even short-term |
| Electrical | Apprentices are employees for payroll tax; there's no apprentice exemption from FICA |
| Landscaping | Crews that work across state lines may trigger withholding and unemployment registration in another state |
| Cleaning | Part-time staff are still W-2 employees if you control the work; payroll tax applies from the first dollar |
| Pest control | Route techs paid per stop or per service are still W-2 employees if you control the routes; piece pay is wages |
Common payroll tax mistakes
- Paying crew in cash off the books. Cash wages are still wages, and unreported payroll is where audits start.
- Missing deposit dates. Penalties apply even when the Form 941 is filed on time.
- Forgetting state registrations. You usually need a state withholding account and a state unemployment account before the first payroll.
- Treating bonuses as non-wage. Year-end bonuses and spiffs are wages subject to FICA and withholding.
- Running payroll by hand without a calendar. A payroll provider or your CPA can handle deposits and filings; the deadlines don't move for busy season.
Frequently asked questions
What percentage of payroll goes to taxes for an employer?
For 2026 federal taxes, the employer pays 6.2% Social Security on wages up to $184,500, 1.45% Medicare on all wages, and FUTA of usually 0.6% on the first $7,000 per employee. State unemployment tax and other state programs come on top and vary by state and employer.
What is the Social Security wage base for 2026?
The Social Security wage base for 2026 is $184,500. Both the employer and employee pay 6.2% on wages up to that amount. Medicare tax has no wage limit.
How much is FUTA per employee in 2026?
FUTA is 6.0% of the first $7,000 of each employee's wages. If you pay state unemployment tax on time and your state isn't a credit reduction state, you can take up to a 5.4% credit, so the net is usually 0.6%, or $42 per employee for the year.
When are payroll taxes due?
Monthly depositors deposit each month's taxes by the 15th of the next month. Semiweekly depositors deposit within a few days of each payday. If you accumulate $100,000 or more on any day, it's due the next business day. Form 941 is due the last day of the month after each quarter.
Do I pay payroll taxes on 1099 subcontractors?
No. You don't withhold or pay employment taxes on genuine independent contractors; they pay self-employment tax themselves. You report payments of $2,000 or more in 2026 on Form 1099-NEC. If the worker is really an employee, payroll taxes apply regardless of the 1099.
What happens if I don't pay payroll taxes?
Penalties and interest apply to late deposits and filings. For withheld income tax and the employee share of FICA, the IRS can also assess the trust fund recovery penalty, equal to 100% of the unpaid amount, against responsible people personally, including owners.
Do owners pay payroll taxes on their own pay?
It depends on the business structure. Sole proprietors and partners pay self-employment tax instead of payroll tax. S corporation owners who work in the business are employees and must take a reasonable salary through payroll, which is subject to FICA and withholding.
Related
- W-2 vs. 1099: What's the Difference for Contractors?W-2 employee or 1099 subcontractor? The IRS control test explained with real construction examples, the 2026 tax cost of each, and misclassification risks.
- Do I Need to Send a 1099 to a Subcontractor?When a contractor must send a subcontractor a 1099-NEC: the new $2,000 threshold for 2026 payments, who's exempt, due dates, and what to collect first.
- What Is a Reasonable Salary for an S Corp Owner?How S corp contractors set a reasonable salary: the IRS factors, how to document it, what happens if it's too low, and a worked HVAC owner example.
- S Corp vs. LLC for Contractors: Which Is Better?S corp vs. LLC for a trades business: what each one is, how the self-employment tax math works in 2026, the extra costs, and when switching starts to pay.
- What Is Self-Employment Tax?Self-employment tax is 15.3% on 92.35% of net earnings. See the 2026 wage base, how to calculate it, the half-SE deduction and contractor examples.
- What Is Labor Burden?Labor burden is what an employee costs beyond wages: payroll taxes, workers' comp, benefits. See the formula, 2026 tax rates and a tech's true hourly cost.
- True Cost of an Employee Calculator for Trades BusinessesSee what an hourly employee really costs: wages, 7.65% employer FICA, FUTA, SUTA, workers' comp and benefits, per paid and per billable hour.
- 1099 vs. W-2 Cost Calculator: Employee or Subcontractor?Compare the full cost of a W-2 employee with a 1099 subcontractor for the same hours. Get the break-even sub rate and what each worker keeps.
- How to Hire Technicians and Build a Pay Plan That WorksHire and pay field techs right: where to find them, interviews, hourly vs. commission vs. flat-rate pay plans, overtime math and W-2 vs. 1099 risk.
- Bookkeeping for contractors that keeps your books tax-ready all yearContractor bookkeeping that stays current: categorized expenses, 1099 subcontractor tracking, sales tax and quarterly tax reminders, synced to QuickBooks.
Sources
- IRS — Publication 15 (2026), Employer's Tax Guide (checked October 12, 2026)
- IRS — General Instructions for Forms W-2 and W-3 (2026) (checked October 12, 2026)
- IRS — Topic No. 554, Self-employment tax (checked October 12, 2026)
- IRS — Publication 15-A (2026), Employer's Supplemental Tax Guide (checked October 12, 2026)