Learn which payroll taxes employers withhold or pay, how federal and California taxes differ, and why deposit schedules matter more than return dates.
Employer payroll taxes are taxes an employer must calculate, withhold when applicable, deposit, report, and reconcile when paying employees. Some amounts are withheld from employee wages; others are an additional employer cost. The employer is responsible for sending both categories to the correct agency on time.
Federal payroll obligations commonly include income-tax withholding, Social Security and Medicare taxes under FICA, Additional Medicare Tax withholding when applicable, and federal unemployment tax under FUTA. California employers may also handle personal income tax withholding, unemployment insurance, Employment Training Tax, and State Disability Insurance.
| Tax | Common funding source |
|---|---|
| Federal and California income-tax withholding | Employee wages |
| Social Security tax | Employee share plus matching employer share |
| Medicare tax | Employee share plus matching employer share |
| Additional Medicare Tax | Withheld from employee; no employer match |
| Federal unemployment tax (FUTA) | Employer |
| California unemployment insurance | Employer |
| California Employment Training Tax | Employer |
| California State Disability Insurance | Generally withheld from employee |
Assume a California employee earns $60,000 in 2026, with all wages subject to Social Security and Medicare tax:
| Tax | Rate | Amount |
|---|---|---|
| Employee Social Security | 6.2% | $3,720 |
| Employer Social Security | 6.2% | $3,720 |
| Employee Medicare | 1.45% | $870 |
| Employer Medicare | 1.45% | $870 |
The employee FICA withholding is $4,590, and the employer's matching FICA cost is another $4,590. For 2026, Social Security tax generally applies up to the $184,500 wage base. Medicare has no wage-base limit. The employer must also calculate income-tax withholding, FUTA, and California taxes separately.
Employers commonly report federal income-tax withholding and FICA on Form 941 each quarter. FUTA is generally reported annually on Form 940. Forms W-2 report employee wages and withholding.
Deposits do not simply wait until the return is filed. Form 941 taxes generally follow a monthly or semiweekly deposit schedule based on the employer's lookback-period liability. A next-day deposit rule can apply after a sufficiently large accumulated liability. FUTA is deposited for a quarter when the accumulated undeposited tax exceeds $500.
Paying employees on Friday does not mean every tax is due on the quarterly Form 941 deadline. Payroll software can calculate dates, but the employer should verify setup, funding, notices, and filings.
California employers register with the EDD and generally report wages and taxes on Forms DE 9 and DE 9C. For 2026, new employers generally have a 3.4% UI rate on the first $7,000 of taxable wages per employee, while established employers receive an assigned rate. The 2026 Employment Training Tax rate is generally 0.1% on the first $7,000 when applicable.
California SDI is generally withheld from employees. The 2026 SDI rate is 1.3% with no taxable wage limit. California personal income tax withholding depends on payroll and withholding information rather than a flat rate. Rates and wage limits should be checked each year.
California deposit timing depends on the type and amount of tax and the employer's federal deposit schedule. Federal deposits do not satisfy California liabilities.
An employee's FICA taxes are payroll taxes. A sole proprietor or general partner generally does not put an owner's draw through payroll; the owner may owe self-employment tax instead. An S-corporation shareholder who performs services generally must receive reasonable compensation through payroll before treating additional payments as distributions.
Worker classification matters. Issuing Form 1099-NEC does not make someone an independent contractor if the legal relationship is employment. See Employee vs. Independent Contractor for the classification analysis. California can apply tests that differ from federal tax classification.
Heath Income Tax can coordinate payroll setup, reconcile payroll to the books, review owner compensation, and prepare related federal and California filings.
Are employer payroll taxes deductible?
The employer-funded share is generally a business expense when otherwise deductible. Employee withholding is part of gross wages and a liability until deposited.
Does the employer match Additional Medicare Tax?
No. The employer withholds it when required but does not match it.
Does every employer file Form 941?
Most do, but some file Form 944, 943, Schedule H, or another applicable return.
Can a payroll company be responsible for errors?
A provider may have contractual duties, but the employer generally remains responsible to the tax agencies for timely and accurate compliance.
The definitions and examples on this page are for informational purposes only and do not constitute tax advice. Tax laws change frequently and individual circumstances vary. Consult a qualified tax professional before making decisions based on this content.
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