What payroll taxes am I responsible for as an employer?

As an employer, you must withhold federal income tax, Social Security (6.2%), and Medicare (1.45%) from each employee's wages, and match Social Security (6.2%) and Medicare (1.45%) out of your own funds. You also pay Federal Unemployment Tax (FUTA) at 6% on the first $7,000 of each employee's wages (reduced by SUTA credit) and State Unemployment Tax (SUTA) at your state's assigned rate.

When do I need to deposit payroll taxes?

The IRS deposit schedule depends on your total tax liability. New employers generally use the monthly schedule (deposit by the 15th of the following month). Once your lookback period tax liability exceeds $50,000, you become a semi-weekly depositor (deposit on Wednesday for Friday-Saturday-Sunday paydates, and on Friday for Monday-Wednesday-Thursday paydates). The Trust Fund Recovery Penalty — 100% of unpaid deposits — applies if you fail to deposit on time.

Should I do payroll myself or use a service?

Unless you have accounting expertise, using a payroll service is almost always worthwhile. Services like Gusto, ADP Run, or QuickBooks Payroll cost $40–$150 per month for a small team, handle all deposits and filings automatically, and generate the year-end W-2s. The penalty risk from a payroll deposit error — including the catastrophic 100% Trust Fund Recovery Penalty — far exceeds the service cost.

How to Do Payroll for a Small Business

May 26, 2026

Before You Hire Your First Employee

Several registrations and accounts must be set up before you can legally run payroll:

Employer Identification Number (EIN): Apply at irs.gov if you do not already have one — instant issuance, free
State employer registration: Register with your state's department of revenue (for income tax withholding) and department of labor (for unemployment insurance)
Workers' compensation insurance: Required in most states for businesses with employees — obtain before the first day of work
EFTPS enrollment: Set up your federal tax deposit account at eftps.gov — required for electronic federal tax deposits

New Employee Paperwork

Each new hire requires:

Form I-9: Employment eligibility verification — must be completed within three business days of the first day of work
Form W-4: Employee's withholding elections — determines how much federal income tax to withhold
State withholding form: Most states have their own equivalent of the W-4
New hire reporting: Federal law requires reporting new hires to your state's new hire directory within 20 days
Employee benefits enrollment: Health insurance, 401(k), and other benefit elections

Running Payroll: Step by Step

Calculate gross pay: Hours × hourly rate for hourly employees, or salary ÷ pay periods for salaried employees
Withhold federal income tax: Use IRS Publication 15-T wage bracket tables or your payroll software
Withhold FICA taxes: Employee Social Security (6.2% up to $176,100 wage base in 2026) and Medicare (1.45%, plus 0.9% Additional Medicare Tax if earnings exceed $200,000)
Withhold state and local taxes: Per your state's current withholding tables
Calculate employer taxes: Matching Social Security and Medicare, FUTA, SUTA
Issue paychecks or direct deposits
Deposit federal payroll taxes: Per your deposit schedule (monthly or semi-weekly)

Quarterly and Annual Payroll Filings

Form 941 (Quarterly): Reports federal income tax withheld plus Social Security and Medicare taxes — due April 30, July 31, October 31, and January 31
Form 940 (Annual): Reports FUTA tax — due January 31
Form W-2 (Annual): Wage statements to employees — must be distributed by January 31 and filed with SSA by January 31
State returns: Vary by state — quarterly income tax withholding returns and unemployment insurance filings are common

The Role of Your CPA in Payroll

Even if you use a payroll service, your CPA should review quarterly 941s, advise on year-end W-2 reconciliation, ensure FUTA/SUTA deposits are current, and handle any IRS payroll tax notices. The Trust Fund Recovery Penalty — which holds business owners personally liable for unpaid payroll taxes — is one of the most dangerous tax problems a small business can face. Having a CPA oversee your payroll compliance is insurance against this risk.

Find a CPA who handles payroll compliance by browsing our city directory.

Frequently Asked Questions

What payroll taxes am I responsible for as an employer?: As an employer, you must withhold federal income tax, Social Security (6.2%), and Medicare (1.45%) from each employee's wages, and match Social Security (6.2%) and Medicare (1.45%) out of your own funds. You also pay Federal Unemployment Tax (FUTA) at 6% on the first $7,000 of each employee's wages (reduced by SUTA credit) and State Unemployment Tax (SUTA) at your state's assigned rate.
When do I need to deposit payroll taxes?: The IRS deposit schedule depends on your total tax liability. New employers generally use the monthly schedule (deposit by the 15th of the following month). Once your lookback period tax liability exceeds $50,000, you become a semi-weekly depositor (deposit on Wednesday for Friday-Saturday-Sunday paydates, and on Friday for Monday-Wednesday-Thursday paydates). The Trust Fund Recovery Penalty — 100% of unpaid deposits — applies if you fail to deposit on time.
Should I do payroll myself or use a service?: Unless you have accounting expertise, using a payroll service is almost always worthwhile. Services like Gusto, ADP Run, or QuickBooks Payroll cost $40–$150 per month for a small team, handle all deposits and filings automatically, and generate the year-end W-2s. The penalty risk from a payroll deposit error — including the catastrophic 100% Trust Fund Recovery Penalty — far exceeds the service cost.