How do you calculate payroll taxes for an employee?

For each paycheck, withhold 6.2% of gross wages for Social Security (up to $168,600 in 2024), 1.45% for Medicare, plus federal income tax using the employee's W-4 and the IRS withholding tables. The employer matches the 6.2% and 1.45% out of its own funds. Add any applicable state and local income tax on top of that.

What percentage is taken out of a paycheck for taxes?

A typical employee sees 7.65% withheld for FICA alone (6.2% Social Security + 1.45% Medicare), plus federal income tax that ranges from 10% to 37% depending on taxable income and filing status. Total federal withholding for someone earning $60,000 single is often around 18–22% of gross pay, with take-home closer to 75–80% after all deductions.

Does an employer pay payroll taxes on top of the employee's wages?

Yes. The employer pays the matching 6.2% Social Security and 1.45% Medicare on top of the employee's wages (not deducted from the paycheck). Employers also pay FUTA — 6% on the first $7,000 of each employee's wages per year, reduced to 0.6% in most states after the FUTA tax credit. These are real labor costs beyond the stated salary.

How to Calculate Payroll Taxes Step by Step

August 21, 2026 · 8 min read

Every paycheck involves at least four separate tax calculations — and if you're an employer or a self-employed person, the number is even higher. Payroll taxes fund Social Security, Medicare, and federal unemployment insurance, and they're taken from wages before you ever see the money. Understanding exactly how to calculate payroll taxes helps you verify your pay stub, budget for take-home pay, or fulfill your obligations as someone who pays others. This guide walks through each component with real numbers.

What are payroll taxes?

Payroll taxes are taxes withheld from an employee's wages (and sometimes matched or paid separately by the employer) to fund specific federal programs. The main components are:

Federal income tax withholding — based on the employee's W-4 and IRS withholding tables
Social Security tax — 6.2% from employee, 6.2% matched by employer
Medicare tax — 1.45% from employee, 1.45% matched by employer
Federal Unemployment Tax (FUTA) — paid only by the employer, not deducted from employee wages
State income tax withholding — varies by state, some states have none

The combined employee-side FICA taxes (Social Security + Medicare) are often called FICA — Federal Insurance Contributions Act. The employer pays an equal FICA amount on top of the salary, which is an additional labor cost that doesn't appear on the employee's pay stub.

How to calculate Social Security and Medicare taxes (FICA)

FICA is the most straightforward payroll tax calculation because it's a flat percentage with no withholding tables required.

Social Security tax

The rate is 6.2% of gross wages, up to the Social Security wage base ($168,600 in 2024). Once an employee's cumulative wages for the year exceed that threshold, no further Social Security is withheld for the rest of the year.

Employee withholds: Gross wages × 6.2%
Employer pays: Same amount (matching contribution)

Example: An employee earns $4,500 gross in a biweekly pay period.

Employee Social Security withheld: $4,500 × 0.062 = $279.00
Employer Social Security due: $4,500 × 0.062 = $279.00 (on top of wages)

Medicare tax

The rate is 1.45% of gross wages with no wage cap. High earners pay an additional 0.9% Medicare surtax on wages above $200,000 (single) or $250,000 (married filing jointly) — that additional 0.9% is employee-only, not matched by the employer.

Employee withholds: Gross wages × 1.45%
Employer pays: Same amount

Example (same $4,500 paycheck):

Employee Medicare withheld: $4,500 × 0.0145 = $65.25
Employer Medicare due: $4,500 × 0.0145 = $65.25

Together, the employee pays $279.00 + $65.25 = $344.25 in FICA per period, and the employer pays the same $344.25 on top of the payroll cost.

How to calculate federal income tax withholding

Federal income tax withholding is more complex than FICA because it depends on the employee's W-4, filing status, pay frequency, and the IRS withholding tables published in Publication 15-T each year. Most payroll software handles this automatically, but understanding the mechanics helps you spot errors.

The percentage method (simplified)

The IRS percentage method works as follows:

Start with gross wages for the pay period.
Subtract pre-tax deductions (401(k), health insurance premiums, FSA contributions).
Annualize the result by multiplying by the number of pay periods per year (26 for biweekly).
Subtract the Standard Deduction for the employee's filing status ($14,600 single / $29,200 married for 2024).
Apply the 2024 tax brackets to the resulting taxable income.
De-annualize the withholding by dividing by the number of pay periods.

Example — single employee, biweekly pay, $4,500 gross, no pre-tax deductions:

Annualized wages: $4,500 × 26 = $117,000
Minus standard deduction: $117,000 − $14,600 = $102,400 taxable
2024 tax on $102,400 (single): 10% on first $11,600 = $1,160; 12% on $11,601–$47,150 = $4,266; 22% on $47,151–$100,525 = $11,742; 24% on $100,526–$102,400 = $450. Total = $17,618
Per-period withholding: $17,618 ÷ 26 = $677.62

That's a lot of arithmetic to do by hand for every employee every payroll. Use the payroll calculator to get the correct federal withholding for any salary, pay frequency, and filing status instantly — including state taxes for all 50 states.

How to calculate FUTA (Federal Unemployment Tax)

FUTA is an employer-only tax — it does not appear on an employee's paycheck. The rules:

Rate: 6% on the first $7,000 of each employee's wages per year
FUTA credit: Most employers qualify for a 5.4% credit (because they pay state unemployment taxes), reducing the effective rate to 0.6%
Maximum FUTA per employee per year: $7,000 × 0.006 = $42

Once an employee's wages exceed $7,000 for the year, no more FUTA is owed on that employee. For a business with 10 employees, the maximum annual FUTA liability is 10 × $42 = $420 — relatively small, but it must be tracked and deposited quarterly if it exceeds $500.

State income tax withholding

State withholding rules vary significantly. Nine states have no personal income tax at all: Alaska, Florida, Nevada, New Hampshire (on wages), South Dakota, Tennessee (on wages), Texas, Washington, and Wyoming. The remaining states each have their own tables, rates, and allowance structures — some mirror the federal W-4 approach, others have their own forms.

Most payroll software handles state withholding automatically once you select the employee's work state. You can also use the income tax estimator to model your annual federal and effective state tax burden side by side, which helps with planning even if it isn't per-paycheck withholding math.

Full payroll tax example: what it costs an employer to pay a $60,000 salary

Here's what a $60,000 annual salary actually costs an employer in total payroll taxes:

Gross wages: $60,000
Employer Social Security (6.2%): $3,720
Employer Medicare (1.45%): $870
Employer FUTA (0.6% × $7,000): $42
State unemployment insurance (SUTA): varies by state, commonly 1–5% on the first $7,000–$40,000 of wages

Before factoring in SUTA, the employer's payroll tax cost is roughly $4,632 per year on a $60,000 salary — about 7.7% above the stated pay. This is why a job offer of "$60,000" has a true labor cost of roughly $64,600+ before benefits are added.

What the employee sees: a pay stub breakdown

For that same $60,000 salary paid biweekly (26 periods), each gross paycheck is $2,307.69. Here's the approximate withholding breakdown for a single filer with no pre-tax deductions in a 5% state income tax state:

Gross pay: $2,307.69
Federal income tax withheld: ~$290
Social Security (6.2%): $143.08
Medicare (1.45%): $33.46
State income tax (~5%): ~$115
Approximate net (take-home): ~$1,726

That's about 74.8% of gross pay. Pre-tax deductions — 401(k) contributions, health insurance premiums — reduce the federal and state taxable income, which is why maxing out pre-tax benefits is one of the most effective ways to lower your withholding legally. For a personalized breakdown with your exact numbers, use the payroll calculator.

Self-employed: you pay both sides of FICA

If you're self-employed, there's no employer to pay the matching 6.2% + 1.45%. You owe the full 15.3% self-employment tax on net self-employment income (up to the Social Security wage base). The IRS allows you to deduct half of this SE tax from your gross income when calculating your federal income tax — a partial offset but not a full one.

Self-employed individuals typically make quarterly estimated tax payments to the IRS to cover both SE tax and federal income tax as they go, rather than having an employer withhold from a paycheck.

Calculate your exact take-home pay

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Payroll taxes may look complicated on paper, but the mechanics are consistent: FICA is always a flat percentage of gross wages, federal income tax withholding follows IRS tables based on your W-4, and FUTA is an employer-only cost capped at $42 per employee. Once you understand each layer, the math on any pay stub becomes readable — and you'll quickly spot if something is off. For a broader look at how all of your taxes add up — including what bracket you're in — see our guide on how much you'll take home after taxes.