Payroll Tax Rates: What It Means for Employers

What it means in practice

What this entry covers. This entry is a consolidated rate reference: it lists the 2026 federal rates side by side, shows where each number comes from and when it can change, and explains how state unemployment rates are assigned. For what each tax is and which ones come out of the employer's own funds, see employer payroll taxes; for the mechanics of withholding generally, see withholding.

Rates withheld from the employee (2026). Publication 15 (2026) gives four employee-side rates that apply to wages. Social Security tax is 6.2% of wages up to $184,500. Medicare tax is 1.45% of all covered wages. Additional Medicare Tax is 0.9% of wages paid in excess of $200,000 in a calendar year; IRS Topic 751 says the employer withholds it "without regard to filing status," starting in the pay period in which wages pass $200,000. Federal income tax withholding has no single rate: Publication 15-T (2026) supplies the tables based on Form W-4, except for flat-rate supplemental wage withholding described below.

Rates paid by the employer (2026). The employer matches Social Security at 6.2% up to the same $184,500 base and Medicare at 1.45% with no base, so IRS Topic 751 lists combined rates of 12.4% and 2.9%. There is no employer match for Additional Medicare Tax. FUTA is 6.0% of the first $7,000 paid to each employee during the year and, as Publication 15 says, "Only the employer pays FUTA tax; it isn't withheld from the employee's wages." The employer also pays state unemployment tax at a rate the state assigns, covered under state unemployment tax (SUTA).

Where the federal rates come from. Most of these percentages are written into the Internal Revenue Code and do not change unless Congress amends it. Section 3101(a) imposes the 6.2% employee Social Security tax and section 3101(b)(1) the 1.45% employee Medicare tax; section 3111(a) and (b) impose the matching 6.2% and 1.45% employer excise taxes. Section 3101(b)(2) imposes the 0.9% Additional Medicare Tax on wages above $250,000 for a joint return, half that amount for a married person filing separately, and $200,000 in any other case; those dollar amounts are written into the statute. Section 3301 sets the FUTA rate at 6 percent of wages. The figure that moves every year is the Social Security wage base, explained under taxable wage base.

How the 5.4% FUTA credit works. Section 3302 gives employers a credit against FUTA for contributions paid to a state unemployment fund, and section 3302(c)(1) caps total credits at 90 percent of the FUTA tax, which is 5.4% of wages on a 6.0% tax. Section 3302(b) adds an "additional credit" so that an employer whose experience-rated state rate is below 5.4% can still take the full credit. The Instructions for Form 940 (2025) put it plainly: you may receive an additional credit if your state experience rate is lower than 5.4%, equal to the difference between what you actually paid and what you would have paid at 5.4%. The credit shrinks if state tax is paid late: section 3302(a)(3) limits credit for contributions paid after the Form 940 due date to 90 percent of what would otherwise be allowed. The full FUTA rules are under FUTA.

Credit reduction states. The IRS explains that a state becomes a credit reduction state if it has outstanding federal unemployment loan balances on January 1 for two consecutive years and does not repay them in full by November 10 of the second year. The reduction is 0.3% for the first year, another 0.3% for the second, and an additional 0.3% each year after that, and section 3302(c)(2) allows further add-on reductions beginning with the third and fifth January 1 with a balance outstanding. The Department of Labor determines the list after November 10 each year. For tax year 2025, the Schedule A (Form 940) instructions list two: California at 0.012 (1.2%) and the U.S. Virgin Islands at 0.045 (4.5%). DOL's historical table shows the same two for 2025, and notes that both received credit reduction add-on relief that year. The IRS says the extra liability is treated as incurred in the fourth quarter and is due by January 31 of the following year.

Looking ahead to the 2026 list. DOL's table of potential 2026 credit reductions names the same two jurisdictions, both of which had an advance balance on January 1, 2026: California with an estimated potential total of 5.3% (1.5% for the outstanding advance plus an estimated 3.8% benefit cost rate add-on) and the Virgin Islands at 4.8%. DOL calls the add-on values preliminary estimates and says the final reduction is not determined until November 10. Treat these as planning figures, not final rates, until the IRS publishes the 2026 Schedule A (Form 940).

Flat income tax withholding rates. Three federal income tax rates are fixed percentages rather than table amounts. For supplemental wages such as bonuses and commissions identified separately from regular pay, Publication 15 allows a flat 22% ("no other percentage allowed") if income tax was withheld from the employee's regular wages in the current or preceding year. To the extent an employee's supplemental wages for the calendar year exceed $1 million, the excess must be withheld at 37% "without regard to the employee's Form W-4," counting payments from all businesses under common control. Backup withholding on certain nonpayroll payments, such as nonemployee compensation, is 24% when the payee fails to furnish a correct taxpayer identification number. Publication 15 says all three rates remain the same in 2026 because P.L. 119-21 permanently extended the individual rates enacted in 2017. The flat-rate methods are explained under flat tax withholding.

Why those flat rates follow the brackets. Section 3406(a)(1) sets backup withholding at "the fourth lowest rate of tax applicable under section 1(c)," and Publication 15 describes the supplemental rate as 37% "or the highest rate of income tax for the year," so both move if Congress changes the brackets.

Self-employment tax for contrast. A self-employed person pays both halves. IRS Topic 554 says the self-employment tax rate consists of 12.4% for Social Security and 2.9% for Medicare, a combined 15.3%, generally applied to 92.35% of net earnings from self-employment, with the Social Security part capped each year. The person may deduct one-half of the tax in figuring adjusted gross income. An employer never withholds this tax; see self-employment tax. For an employee, the same 15.3% is split, with the employer paying 7.65% (6.2% plus 1.45%) on wages below the base.

How state unemployment rates are assigned. DOL says state law determines individual state unemployment insurance tax rates. Most states use experience rating, so an employer's rate reflects its own history of benefit charges. Florida is one example, from the Florida Department of Revenue's Reemployment Tax Rate Information page. A new employer starts at 2.7% on the first $7,000 of wages per employee and keeps that rate until it has reported for 10 quarters. After that, the department divides benefits charged to the account by taxable payroll for the first seven of the last nine quarters, and the final rate combines an individual benefit ratio with a variable adjustment factor (including a fund size factor tied to the trust fund balance) and a final adjustment factor. For wages paid in 2026, Florida lists a minimum rate of 0.1% ($7 per employee) and a maximum of 5.4% ($378 per employee). The same page notes federal guidelines requiring each state to base its tax structure on benefit experience, with a maximum rate of at least 5.4% and a wage base of at least $7,000.

When state rates arrive. Florida says annual Reemployment Tax Rate Notices (Form RT-20) are mailed in mid-December, and a protest must be filed within 20 days of the "mailed on or before" date on the notice. Other states use different formulas, wage bases and notice dates; check your own state agency.

How federal figures are published and when they change. The Social Security wage base is set by SSA under section 230 of the Social Security Act and published in the Federal Register each October. In its notice of October 26, 2026 (91 FR 67380), SSA set the 2027 base at $192,300 "for remuneration paid in 2027 and self-employment income earned in tax years beginning in 2027," using a 2025 national average wage index of $72,800.33. The same notice sets 2027 coverage thresholds of $3,100 for domestic workers and $2,700 for election workers, up from $3,000 and $2,500 in Publication 15 (2026). The IRS then restates the year's figures in the "What's New" section of Publication 15, which is labelled "For use in 2026," and issues annual income tax withholding tables in Publication 15-T. Credit reduction states follow the November 10 DOL determination, and state rates follow each state's own notice cycle.

Step by step: refreshing rates for a new year. (1) Load the new Social Security wage base for January 1 pay dates ($192,300 for 2027). (2) Reset year-to-date counters for the Social Security base, the $200,000 Additional Medicare threshold, the $7,000 FUTA base and each state wage base. (3) Confirm the rates in the new Publication 15. (4) Load the state rate from your rate notice. (5) Check the final credit reduction list for the year just ended. (6) Load the new Publication 15-T tables and confirm the flat rates.

Example 1 (illustration): one bonus, several rates. In 2026 an employee has been paid $180,000 of regular wages, all subject to Social Security and Medicare, and income tax was withheld from them. The employer pays a separate $30,000 bonus and uses the optional 22% rate; supplemental wages for the year stay under $1 million. Income tax withholding is $6,600.00 (22% x $30,000). Only $4,500 of the bonus falls under the $184,500 base, so Social Security is $279.00 (6.2% x $4,500). Medicare is $435.00 (1.45% x $30,000). Wages reach $210,000, so Additional Medicare Tax is $90.00 (0.9% x $10,000). The employee has $7,404.00 withheld. The employer adds $279.00 and $435.00, and nothing for Additional Medicare Tax or FUTA, since the $7,000 FUTA base was used up earlier in the year.

Example 2 (illustration): a credit reduction state. A California employer paid 10 employees more than $7,000 each in 2025 and paid its state tax on time. FUTA wages are $70,000. Tax at 0.6% is $420.00, and the 1.2% credit reduction adds $840.00 (Schedule A: $70,000 x 0.012), for $1,260.00 in total, or $126.00 per employee instead of $42.00. The extra $840.00 is treated as a fourth-quarter liability.

Example 3 (illustration): the 2027 wage base. At $184,500, the most Social Security tax withheld from one employee in 2026 is $11,439.00 (6.2% x $184,500). At $192,300 for 2027, the maximum rises to $11,922.60 (6.2% x $192,300), an increase of $483.60, and the employer's matching maximum rises by the same amount.

Recordkeeping. Publication 15 says to keep all records of employment taxes for at least 4 years. Keep each year's state rate notice and the wage bases and credit reduction rate you applied.

Question: Does the 6.2% Social Security rate change in 2027? The SSA notice changes the base, not the rate. The 6.2% rates come from sections 3101(a) and 3111(a), which only Congress can change.

Question: Does the employer match the 0.9% Additional Medicare Tax? No. IRS Topic 751 and Publication 15 both say there is no employer share. The employee's final liability depends on filing status; IRS Topic 560 lists thresholds of $250,000, $125,000 and $200,000, and the employee settles any difference on Form 8959.

Question: If my state rate is 1%, do I lose part of the FUTA credit? No. The Form 940 instructions say an employer with a state experience rate below 5.4% may receive an additional credit, so timely payment can still produce the full 5.4%.

Question: Do supplemental wages escape FICA because they get a flat income tax rate? No. Publication 15 says that regardless of the income tax method, supplemental wages are subject to Social Security, Medicare and FUTA taxes.

Question: Is backup withholding reported with payroll? No. Publication 15 says backup withholding and other nonpayroll withholding is reported on Form 945, not on Form 941. For 2026, P.L. 119-21 raised the aggregate reportable payment threshold for payments under sections 6041(a) and 6041A(a) from $600 to $2,000.

This entry lists rates as of November 2026 and does not decide which rate applies to a particular worker or payment. See also FICA and Social Security tax.

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