What are ER taxes?

Employer-responsible taxes, also called employer taxes, are taxes businesses may be required to pay based on their employees’ gross wages and compensation. Failure to properly pay or withhold these taxes may result in legal action against the company, including IRS penalties, interest and tax liens, and, in severe cases, personal liability for business owners under the Trust Fund Recovery Penalty (TFRP).

Payroll taxes withheld from employees are typically considered trust fund taxes, and the IRS regards employers as fiduciaries, not solely as payers. Payroll tax noncompliance is one potential way to trigger audit findings, levies and personal assessments, especially for closely held businesses.

“In heavily regulated sectors like healthcare, government contracting and construction, payroll tax compliance is often part of audit readiness preparation and can influence bid eligibility.”

—Tarik Griffith, accountant

What is included in ER taxes

ER taxes commonly include Social Security, the Federal Unemployment Tax Act (FUTA), the State Unemployment Tax Act (SUTA), Medicare and any additional local payroll taxes. One of the most significant of these is the Federal Insurance Contributions Act (FICA) tax, which is paid by both the employer and the employee to fund Social Security and Medicare.

For 2026, the Social Security tax rate is 6.2%, and the Medicare rate is 1.45%, meaning the FICA rate is 7.65% for employees and 7.65% for employers. Certain industries with high tip income, such as restaurant and hospitality, have special credit provisions for employer FICA regarding tips.

Considerations for calculating ER taxes

1. Social Security

Employers can calculate Social Security taxes using this formula:

Social Security equals 6.2% of all wages up to $184,500 for an individual employee for 2026 (up from $176,600 in 2025, $168,600 in 2024 and $160,200 in 2023).

2. Federal Unemployment Tax Act (FUTA)

This is the formula to calculate Federal unemployment taxes:

FUTA equals 6% of all wages up to $7,000.00 that are paid to an employee during each year. Credit reductions may apply in states with outstanding federal loans.

3. State Unemployment Taxes (SUTA)

State unemployment taxes (SUTA) vary widely and are specific to each state. They are updated annually using state Department of Labor websites. Employers can use this formula to calculate them.

SUTA equals the variable percentage of all wages up to $10,000 paid to an employee during each year.

4. Medicare

To calculate Medicare taxes, employers can use this formula: 

Medicare = 1.45% of all wages.

An additional 0.9% must typically be assessed if any of these conditions apply:

• Wages for married couples filing jointly exceed $250,000
• Wages for married couples filing separately exceed $125,000
• Wages exceed $200,000 for everyone else

5. Add each result to get the total ER taxes

Total employer tax liability for an employee typically equals the sum of the employer’s share of Social Security and Medicare, the employer FUTA liability (after credits) and applicable state and local employer taxes.

Note this excludes amounts withheld from the employee’s pay (employee tax withholdings) and may not include other employer payroll-related obligations (state disability taxes, paid-leave assessments, etc.).

Taxes that are the responsibility of employees

There are five taxes that employees are generally responsible for paying. These may include:

• Social Security: This tax is paid by both the employer and employee to support the benefits employees receive during retirement.
• Medicare taxes: Medicare taxes are paid by both the employer and employee and are intended to partially cover Medicare health insurance.
• Federal income tax: This tax is based on IRS Form W-4 inputs. The amount due is updated annually and is generally paid solely by employees to maintain the country.
• State income tax: Most states currently levy a state income tax, though some do not. Check current state tax law for changes or special rules (such as taxes on investment income in certain years).
• Local taxes: These vary and are generally used to fund education and community improvement projects. 

What to know about employer taxes as a manager

These are important elements to consider when calculating and completing employer taxes:

Paying payroll taxes

When calculating payroll taxes, employers are typically responsible for completing the necessary deductions from an employee’s wages for tax expenses and for paying the correct amount of tax based on an employee’s salary level.

Depositing withheld tax dollars

An employer is almost always responsible for deducting a portion of an employee’s wages to fund Medicare and Social Security taxes. Before employers can deposit any withheld tax dollars, they may be required to identify whether their business’s accrued tax dollars make them a semiweekly or monthly depositor. 

Consider the following regarding depositing schedules:

• According to the IRS, if an employer’s payroll tax is less than $2,500 as of the current quarter and they didn’t accumulate taxes of $100,000 or more on a given day, they may need to wait to pay it with Form 941 (Employer’s Quarterly Federal Tax Return).
• If payroll taxes are less than $2,500 for the current quarter, employers can select the deposit schedule that suits their business, either monthly or semiweekly.
• If payroll taxes are $50,000 or less as of the current quarter, use a monthly schedule.
• If payroll taxes exceed $50,000 as of the current quarter, use a semiweekly schedule.

In addition to the prior depositing schedules, it’s important to note that if a business accumulates $100,000 or more in payroll taxes, it is required to deposit it within the next business day, regardless of its depositing schedule.

Making reconciliation reports

A reconciliation report includes information from an employer’s current financial statements, such as cash flow, income statements and balance sheet data. It’s important to consider monitoring current expenses and ensuring books are balanced. This can help identify potential errors in payroll taxes and allow for corrections to take place.

Reconciliation reports serve as an early warning system for financial issues. By regularly comparing payroll liabilities against monthly financials, employers can catch reporting errors before they become costly tax penalties or audit findings if done correctly.

This information is provided for general informational purposes only and should not be considered tax, legal or financial advice. Tax rules may vary based on individual circumstances and jurisdiction. For guidance specific to your situation, consult a qualified tax professional or official IRS resources.