Payroll Tax Rates Explained for 2025 (Federal & State Guide for Employers)

Payroll taxes rates aren't just deductions from employee paychecks—they're direct costs that affect your bottom line. The smallest mistake can lead to penalties, interest charges, and time-consuming audits (yikes!).

But staying on the right side of payroll tax compliance is its own challenge, as each year brings changes to tax rates, wage bases, and filing requirements that you need to keep track of. 

In 2025, for example, several significant updates to Social Security wage limits and state-specific taxes will need your attention. Whether you're hiring your first employee or managing a growing team, understanding tax obligations is crucial for compliance and accurate budgeting.

This guide breaks down the essential payroll tax rates and changes for 2025, helping you understand exactly what you're responsible for as an employer.

TL;DR: Payroll tax rates explained for 2025

• Federal payroll taxes include Social Security (6.2% for both employer and employee on wages up to $176,100), Medicare (1.45% for both with no wage limit), additional Medicare tax (0.9% on earnings over $200,000, employee only), and FUTA (0.6% on first $7,000, employer only).
• State payroll taxes vary significantly. California has SUI (1.5-6.2%), ETT (0.1%), SDI (1.2%), and income tax (1-13.3%). New York ranges from 2.1-9.9% for unemployment on the first $12,800 and recently increased its MTA Payroll Mobility Tax to fund transit improvements. Florida and Texas have no state income tax but do have unemployment taxes.
• Employers are responsible for their share of Social Security and Medicare taxes, all FUTA taxes, and state unemployment taxes—these aren't deducted from employee pay but are additional costs to your business.
• Key 2025 changes: Social Security wage base increased to $176,100 (up 4.5%), California SDI increased to 1.2%, New York approved an MTA Payroll Tax increase affecting NYC metro area employers, and many states adjusted their unemployment tax rates.
• Simplify compliance by using payroll software like Homebase that automatically calculates, withholds, and files taxes correctly based on current rates, helping you avoid costly errors and penalties.

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“Homebase is such an easy app. I own and operate several businesses, and Homebase helps me keep track of all businesses at all times. Knowing my payroll percentages from home is one of the amazing features it offers business owners. It has saved me money, and time. It’s so easy to use and our employees love it as well! If you don’t have Homebase, you're missing out!" — Alexandra Ciotti, Owner, The Hamlet Diner

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What is the federal tax rate for payroll?

Payroll taxes fund essential government programs like Social Security and Medicare. 

For 2025, federal payroll taxes include:

Social Security

The Social Security tax rate remains unchanged at 6.2% for both employers and employees in 2025 with a wage base limit of $176,100. This means employers will withhold 6.2% from employee earnings up to this amount and match it with their own 6.2% contribution. 

Once an employee hits this earnings threshold, Social Security tax stops for the remainder of the calendar year. The maximum Social Security tax per employee in 2025 is $10,918.20 (6.2% of $176,100).

Medicare

Unlike Social Security, Medicare tax applies to all wages with no wage base limit. The standard Medicare tax rate is 1.45% for both employees and employers. 

In other words, employers like you need to withhold 1.45% from employee paychecks and contribute a matching 1.45%.

Additional Medicare

For high-income employees, there's an extra Medicare tax to consider. Employers must withhold an additional 0.9% Medicare tax on an individual's wages paid in excess of $200,000 in a calendar year. 

This additional Medicare tax is only paid by the employee and it isn’t matched by the employer.

Federal Unemployment (FUTA)

The Federal Unemployment Tax Act (FUTA) funds unemployment programs. This tax is paid only by employers, not withheld from employee wages. The wage base remains at $7,000 with an effective tax rate of 0.6% for 2025. 

You only need to pay a maximum of $42 per employee annually for FUTA tax.

Important note for employers in credit reduction states: While the standard FUTA rate is 0.6%, employers in certain states face higher rates due to outstanding federal loans. 

In 2025, the U.S. Department of Labor has identified California, Connecticut, New York, and the U.S. Virgin Islands as potential FUTA credit reduction states. The final determination will be made after November 10, 2025. 

For the 2024 tax year, California, New York, and the U.S. Virgin Islands were designated as credit reduction states, with employers in those states paying higher FUTA rates (1.5% for California and New York, and 4.8% for the U.S. Virgin Islands). 

Check with your state's department of labor for the most current information on your effective FUTA rate.

State payroll tax rates

States have their own payroll tax structures that complement the federal system. Let's look at California's taxes as an example.

California Payroll Tax Rates 2025

State Unemployment Insurance (SUI)

• California employers pay SUI tax to fund unemployment benefits. 
• The UI rate schedule for 2025 is Schedule F+, providing UI contribution rates from 1.5% to 6.2%. 
• New employers pay a rate of 3.4% for two to three years. 
• The taxable wage limit is $7,000 per employee per calendar year.

Employment Training Tax (ETT)

The ETT rate for 2025 is 0.1%. This tax helps fund workforce development programs. ETT applies to the first $7,000 of wages paid to each employee annually.

State Disability Insurance (SDI)

California's SDI program, which funds both disability and Paid Family Leave benefits, is funded through employee contributions. For 2025, the SDI withholding rate for employees is 1.2% compared with 1.1% in 2024. 

As of January 2024, there's no taxable wage limit for SDI contributions in California.

Personal Income Tax (PIT)

California requires employers to withhold state income tax from employee paychecks based on the information provided on Form W-4 or the state's DE 4 form. The Golden State has nine income tax rates for 2024 tax returns (filed in 2025), ranging from 1% to 12.3%. 

Those who make over $1 million also pay an additional 1% income tax, bringing the top rate to 13.3%—among the highest in the nation. 

Other state comparisons

Different states take very different approaches to payroll taxes:

• New York: In 2025, New York employers generally pay unemployment insurance of between 2.1% to 9.9% on the first $12,800 each employee earns. 
  
  • New employers pay a flat rate of 4.025%. 
  • New York also has state, city, and in some cases, local income taxes.
• Texas: The maximum unemployment tax rate for 2025 is 6.25% with a taxable wage base of $9,000. Texas has no state income tax.
• Florida: Unemployment insurance tax rates, which Florida calls reemployment tax, range from 0.1% to 5.4% for 2025. The rate for new employers is 2.7%. Like Texas, Florida has no state income tax.

For comprehensive information on your state's specific payroll tax rates, visit your state's department of revenue or employment development department website. 

You can also use an online tool to quickly check state-by-state payroll tax rates.

Employer payroll taxes: What you’re responsible for

As an employer, you have specific tax obligations that differ from what your employees pay. Understanding this distinction helps ensure proper compliance and budgeting.

The key payroll taxes you're directly responsible for include:

1. Employer portion of FICA taxes: You must match the 6.2% Social Security tax and 1.45% Medicare tax that employees pay, for a total of 7.65% on eligible wages.
2. FUTA tax: You pay this federal unemployment tax at a rate of 0.6% on the first $7,000 each employee earns annually.
3. State unemployment insurance: Most states require employers to pay unemployment insurance tax, with rates varying based on your industry, company history, and state laws.
4. Additional state-specific taxes: Depending on your location, you may have additional obligations like state disability insurance or workforce development taxes.

A common misconception is that employers only withhold employee taxes. In reality, you directly pay significant taxes on top of employee wages. 

For a typical employee earning $50,000 annually, employer-paid payroll taxes can add more than $4,000 to your actual employment costs.

Unlike income tax withholding, which varies based on employee elections, employer payroll taxes are mandatory costs of doing business. These taxes fund social programs like unemployment benefits and Social Security that create a safety net for workers.

Payroll tax changes to watch in 2025

Staying current with payroll tax changes is crucial for compliance and accurate budgeting. Here are key updates for 2025:

1. Social Security wage base increase: The federal government increased the Social Security tax limit to $176,100 for 2025. 

This 4.5% increase from the 2024 limit of $168,600 means employers and employees will pay Social Security tax on more wages.

2. State disability insurance rate changes: Several states, including California, have adjusted their disability insurance rates. 

California's SDI withholding rate increased to 1.2% in 2025, requiring employers to update their payroll systems accordingly.

3. State unemployment tax adjustments: Many states recalculate their unemployment tax rates annually. 

Florida, Texas, New York and other states have released their 2025 unemployment tax rate schedules, with some adjustments from previous years.

4. Minimum wage increases: While not technically a tax change, minimum wage increases affect payroll calculations and overall costs. 

For example, Florida's minimum wage will increase to $14.00 starting 9/30/2025 and then to $15.00 starting 9/30/2026.

5. New York MTA Payroll Tax adjustment: New York's recently approved budget includes an increased Payroll Mobility Tax to fund the MTA's capital plan. 

This primarily affects larger employers in the NYC metropolitan area. Businesses operating in this region should monitor these changes for impact on their payroll costs.

The IRS, Social Security Administration, and state agencies typically publish their payroll tax updates in the fourth quarter of the previous year. Setting calendar reminders to check for these announcements in October through December can help you prepare for the coming year.

For 2025, most rate changes went into effect on January 1, so employers should have already updated their payroll systems (watch out for penalties if you haven't!). 

Your payroll tax compliance tips—all in one place

Managing payroll taxes doesn't have to be complicated. Here's what you need to keep in mind to stay compliant:

1. Use payroll software: Tools like Homebase Payroll, ADP, or Gusto automatically calculate, withhold, and file the correct tax amounts based on current rates. The right payroll software cuts down on the paperwork and reduces the risk of costly errors.
2. File Form 941 quarterly: This federal form reports income taxes, Social Security tax, and Medicare tax withheld from employee paychecks. It's due by the last day of the month following the end of each quarter.
3. Keep up with state requirements: State agencies have their own filing schedules and forms. For example, California employers must file DE 9 and DE 9C forms quarterly with the Employment Development Department.
4. Maintain accurate records: Keep all payroll records for at least four years. This includes time sheets, wage calculations, and copies of tax forms.
5. Set reminders for tax deposit deadlines: The frequency of your tax deposits depends on your tax liability. Most small businesses make monthly deposits, but some may need to follow a semi-weekly schedule.
6. Understand contractor vs. employee distinctions: Misclassifying workers can lead to significant tax issues. Properly categorize your workforce to ensure correct tax treatment.

With Homebase Payroll, you can automate these tasks and more. Our platform handles tax calculations, withholding, and filing, so you can focus on growing your business instead of worrying about payroll taxes.

Learn which federal and state tax forms we help file for our clients.

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FAQs about payroll tax rates

What is the federal payroll tax rate? 

Federal payroll taxes are mandatory withholdings from employee paychecks that fund Social Security and Medicare programs, collectively known as FICA (Federal Insurance Contributions Act), plus federal unemployment programs (FUTA). 

For 2025, these rates include: 

• Social Security at 6.2% for both employers and employees (12.4% total) on the first $176,100 of wages.
• Medicare at 1.45% for both parties (2.9% total) on all wages, with an additional 0.9% paid by employees on earnings over $200,000.
• FUTA tax of 0.6% paid only by employers on the first $7,000 each employee earns.

How do you calculate employer payroll tax? 

To calculate employer payroll taxes, multiply each tax rate by the applicable wage base for each employee. For example:

• Social Security: Wages (up to $176,100) × 6.2%
• Medicare: All wages × 1.45%
• FUTA: Wages (up to $7,000) × 0.6%
• State unemployment: Varies by state

Add these amounts to determine your total employer payroll tax obligation.

Are payroll taxes deductible for employers?

Yes, employer-paid payroll taxes are deductible business expenses on your federal income tax return. This includes your share of Social Security and Medicare taxes, federal and state unemployment taxes, and any other employer-specific payroll taxes. 

These deductions help reduce your overall tax burden. 

Do independent contractors pay payroll taxes? 

Independent contractors don't pay payroll taxes in the traditional sense. Instead, they pay self-employment tax, which covers both the employer and employee portions of Social Security and Medicare taxes (15.3% total). 

Businesses don't withhold or pay payroll taxes for properly classified independent contractors, but must issue Form 1099-NEC for payments of $600 or more annually.

How do you calculate payroll taxes?

To calculate payroll taxes:

1. Determine the applicable wage base for each tax.
2. Multiply the wage base by the appropriate tax rate.
3. Add any additional taxes or surcharges.
4. Calculate both employee withholdings and employer contributions.

For example, for an employee earning $5,000 per month in California:

Federal taxes:

• Social Security: $5,000 × 6.2% = $310 (both employee and employer)
• Medicare: $5,000 × 1.45% = $72.50 (both employee and employer)

California state taxes:

• State Disability Insurance (SDI): $5,000 × 1.2% = $60 (employee only)
• California Income Tax: Varies based on filing status and allowances (withheld from employee)
• State Unemployment Insurance (SUI): If the employer's rate is 3.4%, then $5,000 × 3.4% = $170 (employer only, until the $7,000 wage base is reached)
• Employment Training Tax (ETT): $5,000 × 0.1% = $5 (employer only, until the $7,000 wage base is reached)

The total employer cost would include the employer's share of Social Security and Medicare, plus the California SUI and ETT taxes. The employee would have Social Security, Medicare, SDI, and state income tax withheld from their paycheck.

What percentage is taken from a paycheck for taxes?

The percentage taken from a paycheck varies based on income level, filing status, and location. 

• Federal payroll tax withholdings include 6.2% for Social Security (on wages up to $176,100) and 1.45% for Medicare (on all wages), plus an additional 0.9% Medicare tax on earnings over $200,000. 
• Federal income tax withholding varies based on W-4 elections. 
• State and local income tax withholdings add to this total in applicable areas.

What percentage of a paycheck should go to pay taxes?

There's no single "correct" percentage of a paycheck that should go to taxes, as it depends on income level, filing status, deductions, credits, and location. 

Generally, total tax withholdings (federal, state, local income taxes plus FICA) typically range from 15% to 30% of gross pay for most workers. Higher income earners may see larger percentages.

The goal should be to have withholdings close to your actual tax liability—not too little (which could result in penalties) and not too much (which means you're giving an interest-free loan to the government).