Payroll taxes fund Social Security, Medicare, and unemployment programs — but the acronyms make them confusing. Here's what each one means and who pays it.
FICA: Social Security and Medicare
The Federal Insurance Contributions Act (FICA) covers two taxes that are split between employer and employee:
| Tax | Employee | Employer |
|---|---|---|
| Social Security | 6.2% | 6.2% |
| Medicare | 1.45% | 1.45% |
High earners pay an additional 0.9% Medicare surtax above certain thresholds.
Federal income tax withholding
Unlike FICA, federal income tax is paid entirely by the employee. The amount withheld depends on the W-4 form and the IRS tax tables.
FUTA and SUTA: unemployment taxes
- FUTA (Federal Unemployment Tax Act) — paid by employers, funds federal unemployment programs.
- SUTA (State Unemployment Tax Act) — paid by employers at state-set rates.
Employees don't pay FUTA or SUTA in most states.
What employers must remember
- Withhold the correct amounts each pay period.
- Match the employer share of FICA.
- Deposit taxes on schedule with the IRS and state.
- File quarterly (Form 941) and annual returns.
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