What federal, state, and local taxes are employers required to pay?

When you have employees, you as the employer have certain employment tax responsibilities. As an employer, you must withhold and deposit the employee’s part of the taxes and for some taxes pay an employer amount. Keeping track of all the employer-paid taxes for payroll isn't easy, and you might not realize you've missed one until you receive an agency notice that may include a penalty. Below are the most common employer-paid taxes that must be deposited by employers, along with filing the appropriate forms.

Social Security and Medicare

Taxes under the Federal Insurance Contributions Act (FICA) are composed of the old-age, survivors, and disability insurance taxes, known as social security and the hospital insurance tax, known as Medicare. Different rates apply for these taxes. The federal government requires employers and employees to pay social security and Medicare taxes, based on a percentage of an employee’s pay.

Only the social security tax has an annual wage base limit. The wage base limit is the maximum wage that is subject to the tax for that year.

The Additional Medicare Tax does not have an employer match. The tax applies only to an individual’s Medicare wages that exceed a threshold amount based on the taxpayer’s filing status. Employers are responsible for withholding this tax.

Federal and State Unemployment

The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. Only the employer pays FUTA tax; it is not deducted from the employee's wages.

State unemployment insurance taxes are based on a percentage of the taxable wages an employer pays on each employee’s earnings. State unemployment tax rates are issued by each individual state annually. You can look up each state's unemployment tax rate here.

Local Taxes

Employers must comply with many different types of local payroll taxes. These taxes are based on where your employees work and/or live. Certain types of local taxes are only imposed on employers doing business in a locality. Check with your local tax department to see whether they collect any additional employer-paid taxes.

ADP Editorial Team The ADP editorial team is comprised of human resource professionals with extensive experience solving complex HR challenges for businesses of all sizes.