Payroll Tax Rates 2026: What Small Businesses Need to Know

Payroll tax rates changed for 2026, and if you're still using last year's numbers, you're already behind. Between federal Social Security caps, Medicare thresholds, and state unemployment rates that vary wildly, figuring out what to withhold from each paycheck shouldn't require a finance degree.

This guide breaks down 2026 payroll tax rates for federal and state requirements. You'll see what you owe as an employer, what comes out of employee paychecks, and how to calculate everything without spending your Sunday nights second-guessing the math.

Quick summary: 2026 payroll tax rates explained

Payroll taxes fund Social Security, Medicare, and unemployment programs. Both you and your employees contribute, and the math matters.

Federal rates for 2026:

• Social Security: 6.2% from you, 6.2% from employees on wages up to the 2026 wage base (updated annually)
• Medicare: 1.45% from you, 1.45% from employees on all wages (plus 0.9% Additional Medicare Tax for high earners)
• Federal unemployment (FUTA): 6% on first $7,000 per employee, typically reduced to 0.6% with state credits

State taxes vary widely. California charges up to 6.2% for unemployment. Texas and Florida only require state unemployment tax. New York and New Jersey add disability and family leave taxes on top.

Your total cost: Expect 7.65% to 10% in federal payroll taxes alone, plus state unemployment from 0.6% to over 6%. You handle withholding, matching contributions, depositing on time, and filing quarterly. Miss a deadline and penalties start at 2%.

What are payroll taxes?

Payroll taxes are mandatory contributions that fund Social Security, Medicare, and unemployment insurance programs. Unlike income taxes—which employees pay based on their total earnings and tax bracket—payroll taxes come out of every paycheck at fixed rates.

Who pays what:

Employees see Social Security and Medicare taxes withheld from their paychecks. You match those amounts as the employer and add federal and state unemployment taxes on top.

What payroll taxes fund:

• FICA (Federal Insurance Contributions Act): Covers Social Security retirement, disability, and survivor benefits plus Medicare health coverage
• FUTA (Federal Unemployment Tax Act): Funds federal unemployment benefits and administration
• State unemployment taxes (SUTA): Fund state-level jobless benefits programs

The complexity:

Each tax has different rates, wage limits, and filing requirements. Social Security only applies to wages up to a cap that adjusts annually ($176,100 in 2025). Medicare hits all wages with no limit. Unemployment taxes work completely differently depending on your state and your company's claims history.

Federal payroll tax rates for 2026

Here's what you owe the federal government for every employee on your payroll.

Social Security tax:

Both you and your employees pay 6.2% on wages up to $176,100 for 2025. The 2026 wage base will be announced later this year. Once an employee earns more than that cap, neither of you pays Social Security tax on the excess. Total contribution: 12.4%.

Medicare tax:

You and your employees each pay 1.45% on all wages with no income limit. Total contribution: 2.9%. High earners pay an Additional Medicare Tax of 0.9% on wages over $200,000 (single filers) or $250,000 (joint filers). Only employees pay this additional amount—you don't match it.

Federal Unemployment Tax (FUTA):

You pay 6% on the first $7,000 each employee earns per year. This is employer-only—nothing comes out of employee paychecks. Most employers get a credit of up to 5.4% for paying state unemployment taxes on time, dropping your effective rate to 0.6%, or $42 per employee annually.

The rates stay consistent year to year, but the Social Security wage base climbs annually based on national wage trends. That $7,500 increase from 2024 to 2025 means higher-paid employees and you contribute more to Social Security.

How to calculate payroll taxes

Calculating payroll taxes means figuring out what comes out of each paycheck and what you add on top as the employer.

Step 1: Calculate gross wages

Start with what the employee earned before any deductions. If someone works 40 hours at $20 per hour, gross wages are $800.

Step 2: Withhold employee taxes

Take out 6.2% for Social Security and 1.45% for Medicare. On $800 in gross wages, that's $49.60 for Social Security and $11.60 for Medicare. Total employee payroll tax withholding: $61.20.

Step 3: Calculate your employer match

You pay the same amounts—$49.60 for Social Security and $11.60 for Medicare. Your share: $61.20.

Step 4: Add FUTA

You owe 6% on the first $7,000 each employee earns annually, reduced to 0.6% with state unemployment tax credits. If this employee hasn't hit $7,000 yet, you're setting aside about $4.80 per paycheck for FUTA (assuming 0.6% effective rate).

Step 5: Don't forget state unemployment

Your state unemployment tax varies by state and your company's claims history. Rates range from under 1% to over 6% depending on where you operate.

The math itself isn't complicated, it's keeping track of wage caps, state variations, and changing thresholds that turns payroll into a Sunday night project. When you're calculating this for 10, 20, or 50 employees with different wage rates and hours, the complexity multiplies fast. 

That's where automatic payroll tax calculations actually earn their keep. Homebase tracks every wage cap, state rate, and threshold for you, so you're not cross-referencing tables or second-guessing whether you applied the right percentage to the right employee.

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How much employers pay in payroll taxes

Your actual payroll tax bill depends on total wages, but here's the baseline: you're paying at least 7.65% of every employee's gross wages in federal payroll taxes alone—that's your 6.2% Social Security match plus your 1.45% Medicare match.

FUTA adds another layer

On top of FICA, you're paying 0.6% on the first $7,000 each employee earns (assuming you get the full state unemployment tax credit). Once an employee crosses that $7,000 threshold, you're done with FUTA for that person until next year.

State unemployment taxes vary widely

State unemployment insurance rates depend on your location, industry, and claims history. New employers often start at a standard rate, then your rate adjusts based on how many former employees file for unemployment. Rates range from under 1% in some states to over 6% in others like California.

What this means in real numbers

Say you have an employee earning $50,000 annually. You're paying roughly $3,825 in Social Security tax, $725 in Medicare tax, $42 in FUTA, plus state unemployment tax. That's at least $4,592 in payroll taxes for one employee—and that's before state unemployment even factors in.

When you're tracking these costs across your whole team, seeing exactly where those dollars go by department or role helps you make smarter staffing decisions instead of just watching your labor costs climb without understanding why. 

The problem is most payroll systems don't actually show you that breakdown. Homebase does—labor costs by hour, department, and role—so you can adjust strategically instead of making blanket cuts that hurt your operation.

State payroll tax rates: 2025–2026 highlights

State payroll taxes vary dramatically depending on where you operate. While federal rates stay consistent nationwide, your state unemployment insurance tax can range from under 1% to over 6%, and some states add disability insurance, family leave, or transit taxes on top.

California

California hits employers with multiple state payroll taxes. State unemployment insurance (SUI) ranges from 1.5% to 6.2% on the first $7,000 per employee, depending on your experience rating. You'll also pay Employment Training Tax (ETT) at 0.1% on the first $7,000 per employee. California also requires State Disability Insurance (SDI) withholding from employee wages at 1.1% on wages up to $153,164 for 2025.

Texas

Texas keeps it simpler with no state income tax. Employers only pay state unemployment tax (SUTA), which ranges from 0.23% to 6.23% on the first $9,000 of wages per employee. New employers typically start at 2.7%.

Florida

Like Texas, Florida has no state income tax. Employers pay reemployment tax (Florida's version of SUTA) ranging from 0.1% to 5.4% on the first $7,000 per employee. New employers start at 2.7%.

New York

New York employers face unemployment insurance ranging from 2.1% to 9.9% on the first $12,800 of wages for 2025 (the 2026 wage base adjusts automatically). The Metropolitan Commuter Transportation Mobility Tax adds 0.34% on payroll for employers in the New York City metro area.

New Jersey

New Jersey requires unemployment insurance, Temporary Disability Insurance, and Family Leave Insurance. UI rates range from 0.5% to 5.8% on the first $44,800 for 2026. Employees contribute to TDI and FLI through paycheck withholding.

Other state variations

Oregon charges 0.9% to 5.4% for unemployment. Illinois ranges from 0.85% to 8.65%. Colorado runs 0.75% to 10.39%. Virginia goes 0.1% to 6.2%. North Carolina ranges from 0.06% to 5.76%. Pennsylvania runs 1.419% to 10.3734%. Massachusetts charges 0.94% to 14.37%. Tennessee ranges from 0.01% to 10%.

What drives your rate

Your state unemployment tax rate isn't random. States assign rates based on your claims history (how many former employees filed for unemployment benefits). Newer businesses start at a standard rate, then your rate adjusts annually. More claims mean higher rates. Some industries like restaurants and retail typically face higher rates because of higher turnover.

Filing, deposits, and compliance: What employers need to know

Knowing how much employers pay in payroll taxes is one thing. Filing the paperwork and staying compliant is another. The IRS and your state both want their money on time, with the right forms, or penalties start at 2% and climb fast.

Essential forms for employer paid payroll taxes:

• Form 941: Reports quarterly federal payroll tax including Social Security, Medicare, and withheld income tax. Most employers file this every quarter.
• Form 940: Your annual FUTA tax return, filed once per year.
• Form W-2: Goes to employees and the Social Security Administration by January 31, showing total wages and taxes withheld.
• Form 944: Smaller employers with annual liability under $1,000 may qualify to file annually instead of quarterly.
• New hire reports: Required by every state, typically within 20 days of an employee's start date.

How often you deposit depends on your employer tax rates:

Your deposit schedule depends on how much you reported during the lookback period (the 12 months ending the previous June 30). Monthly depositors reported $50,000 or less and deposit by the 15th of the following month. Semiweekly depositors reported over $50,000 and deposit on Wednesdays or Fridays based on when payroll was paid. Small employers with quarterly liability under $2,500 can pay when they file their return.

Miss a deadline and penalties add up:

The IRS charges 2% for deposits 1-5 days late, 5% for 6-15 days late, and 10% after 16 days. Late Form 941 filings trigger a failure-to-file penalty of 5% per month on unpaid taxes, maxing out at 25%. That means a $1,000 tax bill becomes $1,250 if you're five months behind.

Resources to calculate payroll taxes for employer compliance:

IRS Publication 15 (Circular E) covers federal requirements for what payroll taxes employers pay. Your state's Department of Revenue or Labor website has current state payroll tax rates, unemployment insurance details, and filing requirements specific to where you operate.

Tracking deposit schedules yourself means setting calendar reminders for quarterly 941s, annual 940 filings, and figuring out if you're monthly or semiweekly. Homebase files your 941s, 940s, and W-2s automatically—forms generate and submit on deadline without you managing the calendar.

Payroll tax rates FAQs

What is the average payroll tax percentage?

The average payroll tax percentage for employer contributions is 7.65% for federal FICA taxes (6.2% Social Security plus 1.45% Medicare), plus 0.6% effective FUTA rate. State unemployment adds 0.6% to 6% depending on location. Total average employer payroll tax percentage typically runs 8% to 10% of gross wages.

What percent of taxes is taken out of a paycheck?

Employees see 7.65% withheld for FICA (6.2% Social Security, 1.45% Medicare). High earners pay additional 0.9% Medicare tax over $200,000. Federal income tax withholding varies by W-4 elections and tax bracket. State and local taxes add more depending on where you work.

How much do employers pay in payroll taxes?

Employers pay 7.65% for FICA matching, 0.6% FUTA on first $7,000 per employee, plus state unemployment from under 1% to over 6%. For a $50,000 employee, expect at least $4,500 annually in employer paid payroll taxes before state unemployment.

Stop guessing at payroll taxes by state

Federal payroll tax rates don't change much year to year, but state rates? They're all over the place. You're juggling Social Security wage caps that climb annually, state unemployment rates tied to your claims history, and deposit schedules that shift based on how much you paid last year. Get one calculation wrong and you're paying penalties that start at 2% and keep climbing.

Homebase handles the math for you. Your 941s and 940s file themselves on deadline. You can see exactly where your labor dollars go by department instead of staring at spreadsheets wondering where the money went. Run payroll from your phone while you're out, and stop lying awake wondering if you got the California unemployment rate right this quarter.

Try Homebase payroll free and let us handle the tax headaches.