# The employer's payroll taxes

> $642.60 of FICA match and $50.40 of FUTA on September's wages, plus the state's unemployment tax: what Northwind owes on top of gross pay.

Source: https://lopifi.com/learn/employer-payroll-taxes
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**What payroll taxes does an employer pay on top of wages?** $642.60 of FICA match and $50.40 of FUTA on September's wages, plus the state's unemployment tax: what Northwind owes on top of gross pay.

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.

| Employee | Gross | Social Security match | Medicare match | FUTA | Cost before SUTA |
| --- | --- | --- | --- | --- | --- |
| Priya Shah | 5,775 | 358.05 | 83.74 | 34.65 | 6,251.44 |
| Marcus Lee | 2,625 | 162.75 | 38.06 | 15.75 | 2,841.56 |
| Total | 8,400 | 520.80 | 121.80 | 50.40 | 9,093 |

September, per employee: what Northwind owed on top of gross pay. State unemployment depends on the rate the state assigns.

## The FICA match

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 liabilities](https://lopifi.com/md/glossary/payroll-liabilities).

*[Journal entries: AJE-4]*

AJE-4: Northwind's own FICA on September's wages.

## FUTA, the federal unemployment tax

[FUTA](https://lopifi.com/md/glossary/futa) 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.

> “For 2026, the FUTA tax rate is 6.0%. The tax applies to the first $7,000 you pay to each employee as wages during the year. … If you’re entitled to the maximum 5.4% credit, the FUTA tax rate after credit is 0.6%.”

— [IRS Pub. 15 (2026), §14](https://www.irs.gov/pub/irs-pdf/p15.pdf) (PDF), FUTA for 2026: 6.0% of the first $7,000, 0.6% after the state credit

| Quarter | Liability | With anything carried in | Deposit? |
| --- | --- | --- | --- |
| Q3 | 50.40 | 50.40 | No: $500 or less, carried forward |
| Q4 | 33.60 | 84 | No: pay with Form 940 |

Northwind's FUTA for 2026, quarter by quarter, if the salaries don't change.

> “If your FUTA tax liability for any calendar quarter is $500 or less, you don’t have to deposit the tax. Instead, you may carry it forward and add it to the liability figured in the next quarter to see if you must make a deposit.”

— [IRS Pub. 15 (2026), §14 — Depositing FUTA tax](https://www.irs.gov/pub/irs-pdf/p15.pdf) (PDF), FUTA is deposited quarterly once it passes $500

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 reduction](https://lopifi.com/md/glossary/futa-credit-reduction), 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.

> “A state that hasn’t repaid money it borrowed from the federal government to pay unemployment benefits is called a credit reduction state. The U.S. Department of Labor determines these states.”

— [Instructions for Form 940 (2025)](https://www.irs.gov/pub/irs-pdf/i940.pdf) (PDF), Credit reduction states

> “if all advances are not repaid before November 10 of the taxable year”

— [US DOL, FUTA credit reductions](https://oui.doleta.gov/unemploy/futa_credit.asp), FUTA credit reductions — the list is set after November 10

## SUTA, and the rest of the state's

[SUTA](https://lopifi.com/md/glossary/suta) 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 leave](https://lopifi.com/md/glossary/paid-family-and-medical-leave) or [disability](https://lopifi.com/md/glossary/state-disability-insurance) programs funded through payroll; the [Compliance & tax track](https://lopifi.com/md/learn/compliance) covers state registration and returns.

> **What AJE-4 leaves out.** The accounting track's AJE-4 posts Northwind's own share of Social Security and Medicare, and leaves the unemployment taxes to this track. A complete September accrual also carries FUTA — $50.40 — and state unemployment at Northwind's assigned rate. Both are expenses of September's wages, owed whether or not they're deposited yet.

**Accrue them with the wages**
- Pro: The month's payroll cost is the whole cost, so burn and margins are right
- Pro: Payroll liabilities tie to the register and to what's deposited next month
- Con: A month-end entry to make, from the register
- Best for: Every set of accrual books — and every board deck

**Expense them when deposited**
- Pro: Matches the bank feed
- Con: Each month carries the last month's taxes, and the year end misses December's
- Con: FUTA lands in a lump when Form 940 is paid, distorting a quarter
- Best for: Nobody keeping accrual books

When to book the employer's taxes.

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 offset](https://lopifi.com/md/glossary/payroll-tax-offset), worked in the [R&D credit track](https://lopifi.com/md/learn/rd-credit-against-payroll-tax).

> **What an employee costs is gross pay plus 7.65% FICA below the wage base, plus FUTA (usually $42 a year), plus SUTA at the state's rate — none of it on the pay stub.**

## Where this lesson's rules come from

- [IRS Pub. 15 (2026), What's New](https://www.irs.gov/pub/irs-pdf/p15.pdf) (PDF) — Social Security and Medicare tax for 2026 (irs)
- [IRS Pub. 15 (2026), §14](https://www.irs.gov/pub/irs-pdf/p15.pdf) (PDF) — FUTA for 2026: 6.0% of the first $7,000, 0.6% after the state credit (irs)
- [IRS Pub. 15 (2026), §14 — Depositing FUTA tax](https://www.irs.gov/pub/irs-pdf/p15.pdf) (PDF) — FUTA is deposited quarterly once it passes $500 (irs)
- [Instructions for Form 940 (2025)](https://www.irs.gov/pub/irs-pdf/i940.pdf) (PDF) — Credit reduction states (irs)
- [US DOL, FUTA credit reductions](https://oui.doleta.gov/unemploy/futa_credit.asp) — FUTA credit reductions — the list is set after November 10 (agency)
- [Wikipedia, “Federal Unemployment Tax Act”](https://en.wikipedia.org/wiki/Federal_Unemployment_Tax_Act) — Federal Unemployment Tax Act (reference)

## Read further

- https://lopifi.com/md/journal-entries/payroll
- https://lopifi.com/md/startups/payroll-journal-entries
- https://lopifi.com/md/startups/form-941-and-payroll-tax-deposits

- **Track:** [Payroll](https://lopifi.com/md/learn/payroll)
- **Lesson:** Lesson 3 of 8 — 10 min
- **Terms taught:** [FICA](https://lopifi.com/md/glossary/fica), [FUTA](https://lopifi.com/md/glossary/futa), [FUTA credit reduction](https://lopifi.com/md/glossary/futa-credit-reduction), [SUTA](https://lopifi.com/md/glossary/suta), [Payroll liabilities](https://lopifi.com/md/glossary/payroll-liabilities), [Payroll tax offset](https://lopifi.com/md/glossary/payroll-tax-offset)
- **Previous:** [The W-4 withholding worksheet, Payroll · Lesson 2](https://lopifi.com/md/learn/gross-to-net-pay/w-4-withholding-worksheet)
- **Next:** [Payroll tax deposits, Payroll · Lesson 4](https://lopifi.com/md/learn/payroll-tax-deposits)
- **The course:** https://lopifi.com/md/learn