Here’s the line item that surprises almost every new employer. You offer someone $50,000. You budget $50,000. Then the first pay run goes out and the real cost is higher, because there’s a whole set of taxes you pay on top of the wage, not out of it.
Understand these once and you’ll never be caught off guard budgeting a hire again.
The short answer
Employer payroll taxes are the taxes a business owes on its employees’ wages, separate from anything withheld from their paychecks. There are three: the employer’s matching share of Social Security and Medicare (7.65%), federal unemployment tax (FUTA), and state unemployment tax (SUTA). Together they’re why an employee costs more than their stated pay.
Two different buckets, and people mix them up
Every payroll has taxes moving in two directions, and the difference matters.
Money you withhold comes out of the employee’s check: their federal and state income tax, and their half of Social Security and Medicare. That’s their money, and you’re just passing it along. It shows up on their pay stub as deductions, which is the story in gross pay to net pay.
Money you owe as the employer is a separate cost on top of wages. Nothing comes out of the employee’s check for these. This is what people mean by “employer payroll taxes,” and it’s the part that makes a hire cost more than the number on the offer letter. That’s the bucket this lesson is about.
The three employer taxes
1. The FICA match: 7.65%
Whatever your employee pays for Social Security and Medicare, you match it. For 2026 that’s 6.2% for Social Security plus 1.45% for Medicare, so 7.65% total.
Two details worth knowing. Social Security only applies up to a wage cap, which is $184,500 for 2026 and rises most years, so once an employee earns past that, the 6.2% stops for the rest of the year. Medicare has no cap. (There’s also an extra 0.9% Medicare tax on high earners, but that one is withheld from the employee only. You don’t match it.)
2. Federal unemployment tax: FUTA
FUTA funds unemployment benefits at the federal level. The headline rate is 6.0% on the first $7,000 of each employee’s wages, but almost every employer gets a 5.4% credit for paying state unemployment on time, which drops the real rate to 0.6%. That’s a maximum of $42 per employee per year.
The catch: the credit depends on paying your state unemployment tax on schedule. Fall behind on the state side and you can lose part of that credit, which quietly raises your federal bill.
3. State unemployment tax: SUTA
This one varies a lot. Every state sets its own rate and its own wage base, and your specific rate depends on your industry and your history of layoffs (more claims against you generally means a higher rate). New employers usually start at a standard rate until they build a track record.
Because it’s state-specific, this is the number you can’t look up in a national chart. It’s on your state’s rate notice, and it’s worth knowing yours rather than guessing.
So what does an employee really cost?
Add it up and the employer side lands somewhere around 8 to 10 percent above gross wages for most small employers, before you get to benefits, workers’ comp, or software. A useful planning habit: when you’re deciding whether you can afford a hire, budget noticeably more than the salary, not the salary itself. The taxes above are the reason.
Why this trips people up
The employer taxes never appear on the employee’s pay stub, so they’re easy to forget until you see the money leave your account. New owners routinely quote themselves a hiring budget based on the wage alone, then feel blindsided by the true cost. It isn’t a hidden fee. It’s just a part of payroll that lives on the employer’s side of the ledger where you don’t see it every day.
And like everything in payroll, these taxes have to be deposited and filed on a schedule. Miss those deadlines and the penalties stack, which is covered in what happens if payroll taxes are paid late. If you want the whole cycle laid out, start with how to run payroll step by step.
Want your real, all-in cost of a hire worked out for your state? Book a free intro call and we’ll run the numbers together.
This is general education, not tax advice for your specific situation. Rates and wage bases change every year, so confirm the current figures for your business and state before you rely on them.
Frequently asked
What payroll taxes does an employer pay?
Employers pay a matching 7.65% for Social Security and Medicare (6.2% plus 1.45%), federal unemployment tax (FUTA, usually 0.6% on the first $7,000 of each employee's wages), and state unemployment tax (SUTA), which varies by state. These are on top of the employee's wages, not withheld from them.
How much does an employee really cost beyond their salary?
Plan for meaningfully more than the wage itself. The employer FICA match alone adds 7.65%, and unemployment taxes add more on the first chunk of wages. A common rule of thumb is that a worker costs 10 to 15 percent above their gross pay once employer payroll taxes are added, before benefits.
What's the difference between taxes I withhold and taxes I pay?
Withheld taxes come out of the employee's paycheck and you send them on: their income tax and their share of Social Security and Medicare. Employer taxes are your own separate cost on top of wages: your matching FICA share plus federal and state unemployment. Both get deposited, but only one comes out of the employee's pay.