Payroll Tax Basics: What Every Employer Needs to Know
Compliance & Regulation · 2026-01-10 · 6 min
Payroll taxes are the most common source of small business tax penalties. Here is what you owe, when you owe it, and how to avoid the penalties.
Payroll taxes include the employer portion of Social Security and Medicare (7.65% of gross wages), federal unemployment tax (FUTA, 0.6% on the first $7,000 per employee), and state unemployment tax (varies by state and experience rating). These are in addition to the amounts you withhold from employee paychecks for their portion of Social Security, Medicare, and income tax.
Deposit schedules are strict. Semi-weekly depositors must deposit payroll taxes by Wednesday for wages paid the prior Wednesday through Friday, and by Friday for wages paid the prior Saturday through Tuesday. Monthly depositors must deposit by the 15th of the following month. Missing a deposit deadline triggers penalties starting at 2% and escalating to 15%.
The trust fund recovery penalty (also called the 100% penalty) makes payroll tax obligations personal. If your business fails to deposit withheld employee taxes, the IRS can assess the full amount against any responsible person — including officers, directors, and even bookkeepers who had authority over the funds. This is not dischargeable in bankruptcy.
The simplest way to avoid payroll tax problems: use a payroll service. Modern payroll providers calculate withholding, make deposits, file quarterly returns, and issue W-2s. The cost is typically $40-$100 per month plus $4-$10 per employee. Compared to the penalty risk of handling payroll manually, this is extremely cost-effective.
FiscalFlo — AI accounting that reads receipts, invoices, and bank statements automatically. Free tier: 15 documents a month.