The employer's payroll taxes

An employee's salary isn't what they cost. On top of gross pay the employer owes taxes of its own: the FICA match, federal unemployment tax, and the state's unemployment tax. None of it is withheld, so none of it appears on the pay stub, which is why it gets forgotten. Priya Shah cost Northwind $6,251.44 in September on a $5,775 salary, before state unemployment.

The employer pays the same 6.2% Social Security, up to the same wage base, and the same 1.45% Medicare as it withholds. For Northwind that's $642.60 — the figure the accounting track accrues in AJE-4 as payroll liabilitiesPayablesPayroll liabilitiesWhat an employer owes on wages it has already paid — the income tax and the employees' share of Social Security and Medicare withheld from their pay, plus the employer's own payroll taxes — until it is deposited with the government. The withheld part was never the employer's money: IRS Pub. 15 calls it trust fund taxes.

FUTATaxFUTAThe federal unemployment tax an employer pays — 6.0% of the first $7,000 of each employee's wages, reduced to a net 0.6% by the state credit unless the state is a credit-reduction state; filed on Form 940 is employer-only: 6% of the first $7,000 of each employee's wages in a year, less a credit of up to 5.4% for state unemployment tax paid in full and on time. With the full credit it nets to 0.6%, which is at most $42 per employee per year. Northwind's September FUTA is $50.40. In October Priya passes $7,000 and Marcus does in November, so the fourth quarter adds only $33.60 and the year ends at $84: $42 each.

The credit isn't guaranteed. A state that has borrowed from the federal unemployment fund and not repaid it becomes a credit-reduction state, and its employers' credit shrinks — a FUTA credit reductionTaxFUTA credit reductionThe cut to the 5.4% state credit against FUTA for employers in a state that has carried a federal unemployment loan for two consecutive January 1 balances and not repaid it by November 10 — 0.3 points, growing each further year. For 2025: California 1.2%, US Virgin Islands 4.5%, paid with the fourth quarter. The Department of Labor sets each year's list after November 10, so on the date of this lesson the 2026 list isn't final. Northwind's $84 assumes its state isn't on it.

SUTATaxSUTAThe state unemployment insurance tax an employer pays on each employee's wages up to a state wage base, at an experience-rated rate assigned by the state is the state's unemployment tax: a rate the state assigns, on wages up to a wage base the state sets. A new employer gets the state's new-employer rate until it has a claims history; after that the rate is experience-rated, rising with former employees' claims. The rate arrives on a notice from the state agency, and it goes into the payroll provider the day it arrives. A few states also take contributions from employees, and some states run paid family and medical leaveTaxPaid family and medical leaveA state insurance program, funded by payroll contributions from employees, employers or both, that pays wage replacement during leave for a serious health condition, a new child or family care — in about a dozen states and DC, each with its own rate and wage base or disabilityTaxState disability insuranceA state program paying partial wages to employees off work with a non-work-related illness or injury, funded mainly by employee withholding — California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico programs funded through payroll; the Compliance & tax trackTrackCompliance & taxThe entity, the federal and state returns, franchise tax, sales tax, 1099s and the annual calendar.10 lessons · 105 min covers state registration and returns.

One credit can pay part of this bill. A qualified small business can elect to apply part of its research credit against the employer's Social Security and Medicare — the payroll tax offsetTaxPayroll tax offsetAn election by a qualified small business — gross receipts under $5 million and none before the last five years — to apply up to $500,000 a year of its research credit against the employer share of Social Security and then Medicare tax. Elected on Form 6765 with a timely original return, claimed on Form 8974 from the next quarter, worked in the R&D credit trackR&D tax credit · Lesson 5 of 9Taking the credit against payroll taxHow do I use the R&D tax credit against payroll taxes?Who qualifies, how the election is made on Form 6765, and how Form 8974 applies the credit quarter by quarter, worked for one hypothetical year.12 min · 1 page.