Understanding Employment Taxes

Employers must deposit and report employment taxes. See the Employment Tax Due Dates page for specific forms and due dates.

At the end of the year, you must prepare and file Form W-2, Wage and Tax Statement to report wages, tips and other compensation paid to an employee. Use Form W-3, Transmittal of Wage and Tax Statements to transmit Forms W-2 to the Social Security Administration.

Federal Income Tax

Employers generally must withhold federal income tax from employees' wages. To figure out how much tax to withhold, use the employee's Form W-4, the appropriate method and the appropriate withholding table described in Publication 15-T, Federal Income Tax Withholding Methods.

You must deposit your withholdings. The requirements for depositing, as explained in Publication 15, vary based on your business and the amount you withhold.

Social Security and Medicare Taxes

An employer generally must withhold part of social security and Medicare taxes from employees' wages and the employer additionally pays a matching amount. To figure out how much tax to withhold, use the employee's Form W-4 and the methods described in Publication 15, Employer's Tax Guide and Publication 15-A, Employer's Supplemental Tax Guide.

You must deposit the taxes you withhold. See requirements for depositing.

The social security wage base limit is $137,700 for 2020 and $142,800 for 2021. The employee tax rate for social security is 6.2% for both years.

Additional Medicare Tax

Beginning January 1, 2013, employers are responsible for withholding the 0.9% Additional Medicare Tax on an employee's wages and compensation that exceeds a threshold amount based on the employee's filing status. You are required to begin withholding Additional Medicare Tax in the pay period in which it pays wages and compensation in excess of the threshold amount to an employee. There is no employer match for the Additional Medicare Tax.

For additional information see our questions and answers.

Federal Unemployment (FUTA) Tax

Employers report and pay FUTA tax separately from Federal Income tax, and social security and Medicare taxes. You pay FUTA tax only from your own funds. Employees do not pay this tax or have it withheld from their pay. Refer to Publication 15, Employer's Tax Guide and Publication 15-A, Employer's Supplemental Tax Guide for more information on FUTA tax.

Self-Employment Tax

Self-Employment Tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most employees.