What social security obligations do employers in the United States have?

Employers operating in the United States are required to withhold, match, and remit a set of federal payroll taxes on behalf of their employees. These obligations apply to all employers with US-based staff, regardless of whether the employer is a domestic company or a foreign entity operating through a local presence or Employer of Record.

The primary federal payroll tax framework is the Federal Insurance Contributions Act (FICA), which funds Social Security and Medicare. Additional obligations include the Federal Unemployment Tax Act (FUTA) and state-level payroll taxes that vary by jurisdiction.

US employer payroll tax obligations overview

US payroll taxes are split between employer and employee. The employer is responsible for withholding the employee's share from each paycheck and remitting both portions to the Internal Revenue Service (IRS). The employer also bears the cost of its own matching contributions.

The core components are Social Security tax, Medicare tax, Additional Medicare Tax (employee-only), Federal Unemployment Tax (employer-only), and state-level taxes including state unemployment insurance, disability insurance (in some states), and paid family leave contributions (in some states).

Failure to withhold, deposit, or report these taxes correctly results in penalties from the IRS, including the Trust Fund Recovery Penalty, which can be assessed personally against individuals responsible for the failure.

The Federal Insurance Contributions Act (FICA)

FICA is the federal statute that mandates payroll tax contributions to fund the Social Security and Medicare programs. FICA taxes are split equally between the employer and the employee, with each party paying the same rate. The employer is responsible for withholding the employee's share and remitting the combined total to the IRS.

FICA applies to nearly all wages paid in the United States. Exemptions are narrow and include certain categories of non-resident aliens on specific visa types, members of religious orders that have obtained an exemption, and students employed by the educational institution at which they are enrolled.

Social Security tax

The Social Security tax rate is 6.2% for the employer and 6.2% for the employee, for a combined rate of 12.4%. This rate has been stable since 1990.

Social Security tax applies only up to an annual wage base limit. Earnings above this limit are not subject to Social Security tax in that calendar year. The Social Security Administration (SSA) adjusts the wage base limit annually based on changes in the national average wage index. Employers should confirm the current year's limit by referencing the SSA's annual cost-of-living adjustment (COLA) announcement, published each October for the following calendar year.

For illustration: on a salary of $60,000, the total Social Security tax is $7,440 (12.4%), with $3,720 paid by the employer and $3,720 withheld from the employee. For employees earning above the wage base limit, the employer stops withholding Social Security tax once the limit is reached for that year.

Self-employed individuals pay the combined 12.4% rate through self-employment tax, reported on Schedule SE.

Medicare tax

The Medicare tax rate is 1.45% for the employer and 1.45% for the employee, for a combined rate of 2.9%. This rate has been stable since 1986.

Unlike Social Security, Medicare tax has no wage base limit. All wages are subject to Medicare tax regardless of the amount earned.

Additional Medicare Tax

The Additional Medicare Tax is an employee-only tax of 0.9% on wages exceeding $200,000 for single filers and $250,000 for married filing jointly. The employer does not match this additional tax.

The employer is required to begin withholding the Additional Medicare Tax from an employee's wages once they exceed $200,000 in a calendar year, regardless of the employee's filing status. If the employee's actual threshold differs based on their filing status, the adjustment is reconciled on the employee's individual tax return.

Federal Unemployment Tax (FUTA)

The Federal Unemployment Tax Act imposes a tax on employers to fund the federal unemployment insurance program. FUTA is an employer-only tax; it is not withheld from employee wages.

The FUTA tax rate is 6.0% on the first $7,000 of wages paid to each employee per calendar year. However, employers who pay their state unemployment taxes on time receive a credit of up to 5.4%, reducing the effective FUTA rate to 0.6% in most cases.

FUTA applies to employers who paid wages of $1,500 or more in any calendar quarter, or who had one or more employees for at least part of a day in 20 or more different weeks during the current or preceding calendar year.

State payroll taxes

In addition to federal obligations, most states impose their own payroll taxes. The specific taxes, rates, and wage bases vary by state.

State Unemployment Insurance (SUI): All states require employer contributions to their state unemployment insurance funds. Rates are typically experience-rated, meaning they are adjusted based on the employer's history of unemployment claims. New employers are assigned a default rate until sufficient claims history is established.

State disability insurance: A small number of states (including California, New York, New Jersey, Rhode Island, and Hawaii) mandate short-term disability insurance contributions, funded through employee payroll deductions, employer contributions, or both.

Paid family and medical leave: Several states have enacted paid family and medical leave programs funded through payroll taxes. These programs vary significantly in structure, benefit levels, and funding mechanisms.

State income tax withholding: Most states require employers to withhold state income tax from employee wages. The exceptions are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, which do not impose a state income tax on wages.

Employers operating across multiple states must register with each state's tax authority and comply with the specific requirements of each jurisdiction.

Reporting and deposit requirements

US employers must deposit withheld FICA taxes and income taxes with the IRS on a regular schedule. The deposit frequency depends on the employer's total tax liability during a lookback period:

Monthly depositors must deposit employment taxes by the 15th of the following month. Semi-weekly depositors (employers with higher tax liabilities) must deposit within a few business days of each payday, following the IRS's semi-weekly deposit schedule.

Deposits must be made electronically through the Electronic Federal Tax Payment System (EFTPS). Failure to deposit on time results in graduated penalties ranging from 2% to 15% of the underpayment, depending on the length of the delay.

Annual reporting: Employers must file Form 941 (Employer's Quarterly Federal Tax Return) each quarter, reporting total wages paid, FICA taxes withheld, and employer matching contributions. FUTA taxes are reported annually on Form 940.

Employee reporting: Employers must provide each employee with Form W-2 by January 31 of the following year, showing total wages, Social Security wages, Medicare wages, and all taxes withheld. Copies of all W-2s are filed with the Social Security Administration.

Common compliance pitfalls

Misclassifying employees as contractors. Workers classified as independent contractors are not subject to FICA withholding, and the employer avoids matching contributions. If the IRS reclassifies a contractor as an employee, the employer becomes liable for unpaid FICA taxes, penalties, and interest for the full period of misclassification.

Missing deposit deadlines. The Trust Fund Recovery Penalty applies when an employer fails to deposit withheld taxes. This is a personal liability penalty that can be assessed against any individual in the organisation who was responsible for collecting, accounting for, or depositing the taxes.

Failing to register in new states. Employers who hire remote employees in states where they were not previously registered must register with the state's tax authority and begin withholding and remitting state taxes. Failure to do so results in state-level penalties and interest.

Incorrect wage base tracking. Employers must track cumulative wages per employee per calendar year to correctly stop Social Security withholding at the wage base limit and to begin Additional Medicare Tax withholding at the $200,000 threshold. Errors in either direction create compliance exposure.

About Aspirock

Aspirock provides Employer of Record and contractor payroll services across 70+ countries, including the United States. The US team is based in Nolensville, Tennessee, and manages employment compliance, payroll processing, federal and state tax administration, and statutory benefits for client workforces deployed across all 50 states. Aspirock also operates direct entities in the GCC, Turkey, Ireland, and across the EU. For service details, see the Employer of Record service page.

Frequently asked questions

What payroll taxes do US employers have to pay?

US employers pay Social Security tax (6.2% of wages up to the annual wage base limit), Medicare tax (1.45% of all wages), and Federal Unemployment Tax (effectively 0.6% on the first $7,000 per employee after state credits). Most states also require employer contributions to state unemployment insurance and, in some states, disability insurance and paid family leave programs. Employers are additionally responsible for withholding the employee's share of FICA and income taxes.

What is the current Social Security tax rate for employers?

The employer Social Security tax rate is 6.2% of employee wages, up to the annual wage base limit set by the Social Security Administration. The employee pays a matching 6.2%, for a combined rate of 12.4%. The rate has been stable since 1990. The wage base limit is adjusted annually based on changes in the national average wage index; the current year's limit is published by the SSA each October.

Is there a wage cap on Medicare tax in the US?

No. Medicare tax of 1.45% (employer) and 1.45% (employee) applies to all wages without limit. An Additional Medicare Tax of 0.9%, paid by the employee only, applies to wages exceeding $200,000 for single filers or $250,000 for married filing jointly. The employer does not match the Additional Medicare Tax.

What is FUTA and which employers pay it?

FUTA is the Federal Unemployment Tax Act, which funds the federal unemployment insurance system. It is an employer-only tax at a rate of 6.0% on the first $7,000 of each employee's annual wages. Employers who pay state unemployment taxes on time receive a credit of up to 5.4%, reducing the effective FUTA rate to 0.6%. FUTA applies to employers who paid $1,500 or more in wages in any quarter or had employees for 20 or more weeks.

Do US employers pay state-level payroll taxes?

Yes. All states require employer contributions to state unemployment insurance, with rates that are experience-rated based on claims history. Several states also mandate contributions to disability insurance, paid family leave, and other programs. Rates, wage bases, and program structures vary by state. Employers operating in multiple states must register with each state's tax authority individually.

What happens if a US employer fails to deposit payroll taxes on time?

Late deposits incur graduated penalties from 2% to 15% of the underpayment, depending on how late the deposit is. The Trust Fund Recovery Penalty allows the IRS to hold individuals within the organisation personally liable for withheld taxes that were not deposited. This penalty applies to any person who was responsible for the tax deposits and wilfully failed to make them.