If you’re a small business owner figuring out how to calculate payroll taxes, you’re dealing with something every employer has to get right, from your first hire to your fiftieth. Payroll taxes fund Social Security, Medicare, and employment programs, and getting the calculations right protects you from IRS penalties and keeps your employees’ withholdings accurate.
The good news is, once you understand which taxes apply and how each calculation works, payroll taxes become much more manageable. Prefer to skip the manual math? Try OnPay’s free payroll tax calculator to get accurate numbers in just a few clicks.
Fast facts on how to figure payroll taxes
- The four main payroll taxes are Social Security, Medicare, federal unemployment, and state unemployment tax.
- FICA, the Federal Insurance Contributions Act, combines Social Security and Medicare taxes, and employers and employees split the cost 50/50.
- FUTA, the Federal Unemployment Tax Act, and SUTA, its state-level counterpart, fund federal and state unemployment programs.
- Employers alone pay FUTA and SUTA taxes.
You should find all the answers to your payroll questions here. But if you’d rather take payroll off your plate entirely, we also offer a simple payroll service that does the heavy lifting for you. And we publish OnPay customer reviews if you want to hear what other business owners have to say about working with us.
What are payroll taxes?
Payroll taxes are the employment-related taxes employers must pay to federal and state governments whenever they pay employees. These taxes include FICA, FUTA, and SUTA, each with its own tax rate and rules.
Payroll taxes fund federal and state social programs. The main types are:
- Social Security tax (FICA part 1): This tax funds the federal Social Security program, which pays benefits to retired workers, individuals with qualifying disabilities, and survivors of deceased workers.
- Medicare tax (FICA part 2): This tax funds the federal Medicare program, which provides health coverage to people age 65 and older and to certain younger people with disabilities.
- Federal unemployment tax (FUTA): This tax funds the federal unemployment program, which provides temporary payments to workers who have lost their jobs.
- State unemployment tax (SUTA): This is the state-level counterpart to FUTA, administered by each state to support unemployed workers.
FICA is split 50/50 between employers and employees. Employers withhold the employee’s share from each paycheck and remit both portions to the IRS. Employers pay 100% of FUTA and SUTA.
FICA taxes are paid 50% by employers and 50% by employees, which means that employers generally withhold the employee portion from the employee’s paycheck and pay it to the IRS on their behalf. FUTA and SUTA taxes are paid 100% by employers. But don’t worry, we’ll explain all this in easy-to-understand terms below.
New hire paperwork before you run payroll
Before you can calculate payroll taxes, each new employee needs to complete a few new employee documents, including:
- Form W-4: Employee’s Withholding Certificate
- State W-4 (as applicable, depending on your employee’s state of residence)
- Direct Deposit Authorization Form
- Form I-9: Employment Eligibility Verification
Form W-4: Employee’s Withholding Certificate
Each new employee must complete IRS Form W-4, which tells you how much federal income tax (FIT) to withhold from their wages. The employee enters their name, address, and Social Security number, then answers a few withholding-related questions.
What is FIT tax?
“Most individuals show know that ‘FIT’ stands for Federal Income Tax, and this is the tax that the federal government charges US citizens on all income they earn from working their jobs. It’s calculated as a percentage of income, and FIT is called a progressive tax, which means the tax rate increases as you earn more income.”
— David Kindness, CPA
Who pays FIT?
Anyone who earns income in the United States generally owes federal income tax to the IRS. If your income falls below the standard deduction for your filing status (for example, $16,100 for single filers in 2026), you may not owe federal income tax at all.
Employers typically withhold FIT from employees’ paychecks. If an employee doesn’t withhold enough, they may need to make estimated quarterly payments. Employers use each employee’s Form W-4 to determine how to withhold.
The IRS redesigned Form W-4 in 2020. The current version uses a five-step process and Publication 15-T, Federal Income Tax Withholding Methods, to determine withholding, and it no longer relies on withholding allowances.
If you hired an employee in 2019 or earlier, you can keep using the information from their original W-4, which includes a worksheet for calculating withholding allowances for dependents and children. Employees may want to submit a new W-4 if they work a second job, get married, have a child, or get divorced, but you can’t require existing employees to complete a new one.
Employees can also request additional withholding or elect exemption from federal income tax withholding. The current W-4 includes instructions for both.
Have the employee sign the W-4, but don’t send it to the IRS unless the agency requests it. Keep it in the employee’s personnel file for at least four years after the date the related tax is due or paid, whichever is later.
If an employee doesn’t submit a Form W-4 or submits an invalid one, the IRS requires you to withhold taxes as if that employee is single or married filing separately, with no adjustments.
State W-4 (as applicable)
Some states use their own withholding forms. In states that don’t, employers often use the federal Form W-4 as the basis for state and/or local income tax withholding. You can find a complete list of state withholding forms on the Federation of Tax Administrators website.
Direct Deposit Authorization Form
You can pay employees in several ways: paper check, direct deposit, prepaid debit card, or cash. Direct deposit is the easiest and most secure option, and it’s by far the most popular. In fact, 92.7% of US workers now receive their pay this way, according to PayrollOrg’s 2025 “Getting Paid in America” survey.
An employee who wants direct deposit must complete a direct deposit authorization form with their bank routing and account numbers. This form gives you permission to deposit their net pay electronically into their account.
Many employers also request a voided blank check to verify the bank account information the employee provided. If an employee’s bank information changes, they can submit a new direct deposit form along with an updated voided check. Learn more about setting up direct deposit for your employees.
Form I-9: Employment Eligibility Verification
New employees must complete Form I-9 to certify they’re legally permitted to work in the United States. They can prove this with a US passport or Permanent Resident Card, or with a combination of documents like a driver’s license and Social Security card. The US Citizenship and Immigration Services website has a complete list of acceptable documents.
Federal law requires you to obtain a signed Form I-9 from each employee before they start work, and you must complete Section 2 within three business days of their first day. Keep the completed form and any supporting documents in a separate file from the employee’s regular personnel file, so you can produce it quickly if a government agency requests it during an audit.
Best practice
Consider having new employees acknowledge receipt of the company handbook, code of conduct, and any other required policies at the same time. This acknowledgment isn’t necessary for payroll calculations, but handling all new-hire paperwork in one sitting is good practice. HR software can make it easy to manage all these tasks.
Looking for more information on payroll software and calculating payroll on your own? For an in-depth overview (and information you can reference in the future), read our guide on how to do payroll next.
How to calculate payroll taxes in 5 steps
Once you set up your business and your employees, you’re ready to calculate the wages each employee earned and the taxes you need to withhold. You’ll also make deductions for things like health insurance, retirement contributions, or garnishments, and add back any expense reimbursements you owe.
In technical terms, this process takes you from gross pay to net pay.
Jump to the step you need:
- Step 1: Calculate gross pay
- Step 2: Calculate employee tax withholdings
- Step 3: Take care of deductions
- Step 4: Add on any expense reimbursements
- Step 5: Total it all up
Step 1: Calculating gross pay
Gross pay is the amount an employee earns before you withhold any taxes.
For hourly employees, multiply the hours worked during the pay period by the hourly rate. For example, if your receptionist works 40 hours a week at $20 per hour, their gross pay for the week comes to 40 x $20, or $800.
Include any overtime pay, which is typically 1.5 times the normal rate once an hourly employee works more than 8 hours in a day or 40 hours in a week. In this example, your receptionist earns $20 for each of the first 40 hours, then $30 for the 41st hour and any additional hours that week.
Salaried employees are generally exempt from overtime rules, so their gross pay stays the same each pay period. Divide their annual salary by the number of pay periods in a year. For example, a manager earning $55,000 a year who receives a paycheck twice a month has a gross pay of $2,291.67 per pay period ($55,000/12 months/2 pay periods per month).
Gross pay also includes any commissions, tips, and bonuses the employee earns.
Step 2: Calculate employee tax withholdings
Once you know an employee’s gross pay, use their W-4 to determine how much income tax to withhold. In most states, you’ll withhold both federal and state income tax, plus FICA taxes, from each paycheck.
For this example, we’ll calculate withholding for a Florida employee who claims single filing status and two qualifying children on their W-4. They earn a $55,000 annual salary, paid semi-monthly (24 pay periods per year), with gross pay of $2,291.67 per period.
Is payroll tax the same as withholding?
No. Payroll taxes are the taxes you and your employees owe on wages, like Social Security and Medicare. Withholding is a broader term. It includes any amount you hold back from an employee’s paycheck and remit on their behalf, including their share of payroll taxes, their federal and state income tax, health insurance premiums, retirement contributions, etc.
Federal Income Tax (FIT): 2020 or later Form W-4
The IRS calculates FIT using information from an employee’s Form W-4, taxable wages, and pay frequency. Publication 15-T, Federal Income Tax Withholding Methods, offers two calculation options: the Wage Bracket Method or the Percentage Method.
For this example, we’ll use the Percentage Method with the current IRS Publication 15-T tables. This is the same process used in Worksheet 1a of Publication 15-T.
Assumptions:
- Filing status: Single
- Annual salary: $55,000
- Paid semi-monthly (24 pay periods per year)
- Two qualifying children under 17
- No additional withholding
- Step 2 box on Form W-4 not checked
Step 1. Adjust the employee’s wage amount
1a) Enter the employee’s total taxable wages this payroll period: $2,291.67
1b) Pay periods per year: 24
1c) $2,291.67 × 24 = $55,000
Since this is a 2020 or later W-4, complete lines 1d–1i:
1d) Amount from Step 4(a) of Form W-4 (other income): $0
1e) $55,000 + $0 = $55,000
1f) Amount from Step 4(b) of Form W-4 (deductions): $0
1g) Step 2 box not checked, single filer standard amount: $8,600
1h) $0 + $8,600 = $8,600
1i) $55,000 − $8,600 = $46,400
Step 2: Figure the tentative withholding amount
2a) Amount from line 1i: $46,400
2b) Using the Single or Married Filing Separately table, $46,400 falls between $19,900 and $57,900, so enter $19,900 (column A)
2c) Column C amount: $1,240
2d) Column D rate: 12%
2e) $46,400 – $19,900 = $26,500
2f) $26,500 x 12% =$3,180
2g) $1,240 + $3,180 = $4,420
2h) $4,420 / 24 = $184.17
Step 3: Account for tax credits
3a) This employee claims two qualifying children under 17. Under current law, each is worth $2,200: $2,200 x 2 – $4,400
3b) $4,400 / 24 pay periods = $183.33
3c) $184.17 – $183.33 = $0.84
Step 4: Figure the final amount to withhold
4a) $0
4b) $0.84 + $0 = $0.84
Rounding to the nearest dollar, you’ll withhold $1.00 of federal income tax for this employee each pay period. The Child Tax Credit nearly wipes out their projected tax liability.
Still using a pre-2020 Form W-4?
If an employee never submitted a 2020 or later W-4, you can keep using the version on file. The calculation works the same way as above, except you skip lines 1d through 1i and instead multiply the number of allowances claimed by $4,300, then subtract that amount from gross annual wages to get the adjusted annual wage amount. From there, the tentative withholding and final withholding steps are identical.
Worksheet 1A in Publication 15-T walks you through the process if your employee hasn’t submitted a recent W-4.
FICA taxes
The Federal Insurance Contributions Act (FICA) taxes are Social Security and Medicare, and you withhold both from every employee’s wages unless they’re exempt.
- Social Security is a flat 6.2% withholding tax on wages up to the annual wage base ($184,500 for 2026). Wages above that limit are exempt, so annual Social Security withholding can’t exceed $11,439 ($184,500 x 6.2%). For our example employee, multiply gross wages of $2,291.67 by 6.2% to get $142.08.
- Medicare is also a flat tax, at 1.45%, with no annual wage limit. Employees earning more than $200,000 a year owe an Additional Medicare Tax of 0.9% on top of the standard rate. Since the Additional Medicare Tax doesn’t apply to our example employee, multiply $2,291.67 by 1.45% to get $33.23 for Medicare tax.
This employee’s FICA tax per pay period totals $142.08 + $32.23 = $175.31.
You also owe the employer half of FICA taxes. That means you pay $175.31 in matching Social Security and Medicare taxes every time you withhold $175.31 from this employee’s paycheck.
State and local taxes
Some states, including Florida, have no state income tax. If your state requires income tax withholding, calculating it follows a process similar to FIT and FICA once you know the state’s rates and rules. Check whether your state imposes any additional local taxes on top of federal and state withholding.
Step 3: Take care of deductions
Beyond payroll taxes, you’ll also take out any applicable deductions from an employee’s paycheck. Some deductions are voluntary, like health insurance premiums, 401(k) contributions, or health savings account contributions. Others are involuntary deductions, like child support or wage garnishments. You’ll know when to apply these because you’ll receive an order from a court, the IRS, or a state agency.
Pre-tax deductions, like 401(k) contributions, come out of gross pay before you calculate tax withholding in Step 2, which lowers the taxable wage base and the resulting withholding. Post-tax deductions come out after Step 2. Because of this, pre-tax deductions generally save employees more in taxes than post-tax deductions of the same amount.
Step 4: Add on any expense reimbursements
If an employee paid for a company expense out of pocket, you can reimburse them separately or combine it with payroll. Expense reimbursements aren’t part of gross wages, so they’re not subject to tax withholding. Reimburse the full amount and add it to net pay at the end of your calculation.
Step 5: Total it all up
Once you’ve calculated gross pay, tax withholdings, deductions, and reimbursements, you have everything you need for the final paycheck:
- Start with gross pay
- Subtract employee tax withholdings (federal income tax, Social Security, Medicare, and any state taxes)
- Subtract pre-tax and post-tax deductions
- Add on any expense reimbursements
The result is net pay, the amount you send your employee on payday.
Example using a 2020 or later W-4:
- Gross pay: $2,291.67 per pay period ($55,000 / 24 semi-monthly pay periods)
- Federal income tax withholding: $1.00
- Social Security tax: $142.08
- Medicare tax: $33.23
- Total FICA tax: $175.31
- No state income tax withholding (the employee lives in Florida, where there is no state income tax)
- No additional deductions or reimbursements
Net pay:
- $2,291.67 − $1.00 – $175.31 = $2,115.36
From time to time, you may need to add items such as bonuses or reimbursements, or subtract items like wage garnishments or benefit deductions. When you factor in these adjustments, the overall calculation process stays the same.
Keep in mind
There are tools that can do all the calculations for you, and when looking for a platform, there’s a lot to keep in mind. That’s why we put together a resource on how to choose payroll software that touches on the features to look for and must-have functionality to ask about.
Calculating employer payroll taxes
In addition to the taxes you withhold from an employee’s pay, you owe certain payroll taxes directly as the employer:
- FICA matching: You match your employee’s FICA withholding, paying 6.2% for Social Security and 1.45% for Medicare. Using our example employee, you’d pay a matching $142.08 for Social Security and $33.23 in Medicare, for a total FICA obligation of $175.31.
- Unemployment taxes: You also owe federal and state unemployment taxes. Only employers pay unemployment taxes; employees never do.
- Federal Unemployment Tax (FUTA) is 6.0% of the first $7,000 in wages you pay each employee each year. If you qualify, you can claim a credit of up to 5.4%, bringing your effective FUTA tax rate to 0.6%. Once an employee earns more than $7,000 in a calendar year, you stop paying FUTA on that employee for the rest of the year. For our example employee, assuming they haven’t yet reached the $7,000 wage base this year, $2,291.67 x 0.6% = $13.75.
- State Unemployment Tax (SUTA or SUI) varies by state. Check with your state’s labor or revenue department for current rates, wage bases, and filing requirements. Like FUTA, most states cap SUTA at a set wage base per employee per year. For this example, we’ll use Florida’s new employer reemployment tax rate of 2.7%, assuming the employee hasn’t yet reached the $7,000 wage base: $2,291.67 × 2.7% = $61.88.
Small-business friendly
“OnPay makes calculating payroll simple and stress-free. With just a few entries and clicks, I have everyone’s paychecks complete, can see what I owe in taxes, and it all happens automatically. I just print the pay stubs and give them to my employees.”
— Rinda Myers, Kurb to Kitchen LLC
Making payments to the IRS
Calculating payroll and paying your employees is only half the job. You still need to send the taxes you withheld, including FIT, FICA, and any state or local income taxes, to the right agency. For FIT and FICA, that’s the IRS. For state and local income taxes, that is your state’s withholding tax agency.
Send both portions: the taxes you withheld from your employee’s paycheck and the taxes you owe directly as the employer.
Deposits and filing are two separate obligations. How often you deposit federal taxes depends on your total tax liability during your lookback period, a historical look at your payroll and past deposits. Based on that, the IRS assigns you a monthly or semiweekly deposit schedule.
Filing Form 941, Employer’s Quarterly Federal Tax Return, is a separate requirement. You file it every quarter, no matter which deposit schedule you’re on. The deadline is the last day of the month following the end of the quarter. For the quarter ending March 31, Form 941 is due April 30.
Missing either deadline gets expensive fast. Late deposits have tiered penalties: 2% if you’re one to five days late, 5% for six to 15 days, and 10% beyond that. Filing Form 941 late costs 5% of the unpaid tax per month, up to a maximum of 25%. None of these penalties are tax-deductible, so they come straight out of your bottom line.
For state tax filings, contact your state’s withholding tax agency directly. Requirements vary from state to state.
One last thing
You now have everything you need to calculate payroll taxes accurately, from gross pay through federal deposits. If you’d rather hand this off entirely, OnPay handles the calculations, withholding, and filings automatically. Take a peek.
