Employers are responsible for a variety of payroll taxes, which include the withholding and remittance of federal income taxes, state income taxes, and Social Security and Medicare taxes (FICA) on behalf of their employees. But employers also have to fund some taxes on their own, such as unemployment taxes. These can be confusing.
The FICA tax is funded jointly by both employer and employee, with each contributing 6.2% for Social Security (and an additional 1.45% for Medicare), making up 7.65%. Employers will generally match the amount that employees contribute from their wages.
Other taxes, like unemployment insurance (FUTA), depend upon how much you pay your employees. Federal law limits the amount you owe to a certain level of pay (the “wage base”), which currently amounts to $7,000 per year (as of 2026).
There’s also the question of pre-tax deductions — contributions made by employees to accounts like retirement savings plans or Flexible Spending Accounts — which are subtracted before applying any other tax. That’s a good thing, since they reduce the taxable wage base on which all taxes are applied.
California employers also need to deal with the California State Disability Insurance (SDI) tax, which is entirely funded by the employees, not the employer. Employers calculate and withhold SDI using the same approach as FICA: multiply total taxable wages for the period by the current SDI rate.
In addition to these, California also has its own state income tax, which varies based on the employee’s earnings. Finally, there’s the matter of reporting and managing these various taxes. You must report and pay your share of taxes through California’s e-Services for Businesses platform.
What are the employer’s responsibilities? The employer owes several taxes, including:
Withholding and remitting employee payroll taxes (such as federal income taxes, California state income taxes, and SDI) on behalf of the employee.
Contributing the employer’s share of payroll taxes (FICA taxes).
Remitting all withheld and contributed payroll taxes on time.
Employers are also responsible for paying certain taxes that employees do not pay directly, such as workers’ compensation premiums and employer-paid portions of benefits.
Calculating FICA Tax
The Federal Insurance Contributions Act requires that the employer and the employee pay for Social Security and Medicare. Together, these make up FICA taxes. The rates are determined by the federal government, and are calculated by splitting the FICA tax into two components: Social Security (6.2%) and Medicare (1.45%), for a combined FICA rate of 7.65%.
The employer’s share is 7.65% of the employee’s wages, and this is the percentage used to calculate the employer’s FICA tax liability. Employers must withhold the employee’s share of the FICA tax, then add their contribution to the payroll taxes owed.
Federal Unemployment Tax Act (FUTA)
FUTA is another form of federal payroll tax, but it is solely the responsibility of the employer. FUTA is meant to provide funding to the federal government to provide temporary assistance to workers who have been laid off. The amount that employers must pay is calculated by multiplying the employee’s annual earnings by 6%. However, the FUTA tax only applies to the first $7,000 in annual wages paid to an employee. This means that an employee earning more than $7,000 per year would only have the 6% FUTA rate applied to $7,000 in wages.
The federal government allows a credit against the employer’s FUTA tax liability, thereby reducing the effective FUTA rate. Most small business employers qualify for a credit that reduces the FUTA rate to commonly 0.6%.
Step-by-step for Calculating Your Payroll Taxes
You can use the following general steps to calculate your employer’s payroll taxes for each pay period:
First, determine the employee’s taxable wages for the pay period. The IRS determines what is considered taxable wages, but the calculation can vary depending on your company’s structure. For example, if you are calculating annualized wages, you’ll have to factor in the number of pay periods.
Next, check whether you have to apply an adjustment for the W-4 form. Some states require employers to adjust wages before applying the appropriate withholding table.
Once you know the amount of the employee’s taxable wages, you’ll need to determine the wage base. In most cases, the wage base is either the actual wages paid or the maximum wage allowed by the IRS.
Finally, apply the appropriate tax rate and wage base. If the taxes being withheld apply to the entire paycheck, you don’t have to worry about an extra step. However, if the tax is only applicable to a portion of the paycheck, you’ll need to separate out the taxes that are withheld on the portion of the paycheck and those that are withheld on the remainder of the paycheck. In either case, you’ll still apply the appropriate rate and wage base to the employee’s paycheck. If the tax is paid entirely by the employer, you can apply the assigned rate and the state wage base to the employee’s total wages.
Pre-Tax Deductions
Pre-tax deductions are typically made from an employee’s paycheck to pay for things like 401(k) and flexible spending account (FSA) contributions. Since these are subtracted before applying any payroll tax rates, they can help reduce the amount of payroll taxes that the employee ultimately pays. They can also help the employer, since the lower taxable wages mean less payroll taxes.
However, pre-tax deductions aren’t the same as a deduction for federal and state income taxes. Unlike federal and state income tax credits, which are subtracted after taxes are withheld, pre-tax deductions are subtracted first and therefore lower the amount of wages that the employee earns, which reduces the amount of income taxes that are withheld and paid.
State Income Taxes
If you live in California, your state income taxes can be complicated. In California, state income taxes are calculated at a range of rates from 1% to 13.3%, depending on how much you earn. Here’s how that works.
Earnings up to $10,412 in a year pay the lowest state income tax rate of 1%. The next tier, between $10,412 and $1,000,000, increases to a state tax rate of 13.3%. Residents of California who earn more than $1 million per year face a higher state income tax rate of 13.3%.
Comparatively, the state of Pennsylvania levies a flat 3.07% income tax rate. California is among the highest state income tax rates in the country.
State Payroll Taxes
As a California-based employer, you’re responsible for collecting and paying certain state payroll taxes on behalf of your employees. You’re also required to report and pay your share of taxes on an ongoing basis. You must report and pay your share of taxes through the EDD’s online platform.
All payroll taxes, including federal, state, and local taxes, must be filed and remitted according to the EDD’s schedule. The EDD also offers online services that allow you to file your reports, make payments, update your payroll tax account, register, close, or re-open your employer payroll tax account, and report new employees and independent contractors.
The following is a summary of the information and resources provided for California employers to manage and report their payroll taxes:
Payroll Tax Reports
File quarterly and annually reports detailing how many people were employed, what they earned, and what was withheld.
Payroll Taxes
Make payments for your share of the following taxes: FICA, SUTA, State Disability Insurance (SDI), and California income taxes.
Update Your Payroll Tax Account
Keep your payroll tax account updated so that you always know what you owe when it’s due.
Register, Close, or Reopen Your Payroll Tax Account
Create a new payroll tax account, close an existing one, or re-open a previously closed one.
Report New Employees and Independent Contractors
Report all new employees and independent contractors immediately upon hiring.