Summary: Payroll taxes (Social Security and Medicare) are flat-rate taxes split between employer and employee that fund specific programs. Income tax withholding is a prepayment of the employee's own progressive income tax, with no employer share. The employer matches payroll taxes dollar for dollar but never pays a cent of the employee's income tax. Confusing the two is the most common first-time employer mistake.
Both show up as lines on a pay stub, both are remitted to the government by the employer, and both reduce take-home pay. But payroll taxes and income tax withholding are different animals with different rules, different destinations, and critically different costs to you as the employer. Mixing them up leads to under-budgeting hires and misreading pay stubs.
Payroll taxes are Social Security (6.2 percent to the $184,500 wage base in 2026) and Medicare (1.45 percent, no cap). They are flat rates, not brackets: every wage dollar up to the base is taxed at the same rate. They are split evenly: the employer pays 6.2 and 1.45 percent out of pocket, and the employee pays the same through withholding. And they are earmarked: Social Security tax goes to the OASDI trust funds, Medicare tax to Hospital Insurance. They do not fund general government operations.
The employer match is the key economic fact. Hiring someone at $65,000 costs you $65,000 plus $4,972.50 in matching payroll taxes (plus unemployment taxes), before any benefits. That match is a real labor cost that does not appear on the employee's pay stub as their burden, which is why economists consider the full 15.3 percent FICA rate when analyzing the tax wedge on labor.
Income tax withholding is not a tax at all in the economic sense. It is a prepayment of the employee's own federal (and state) income tax, calculated from their W-4 and the withholding tables, remitted by you as a convenience. The employee settles up at filing time: over-withheld means a refund, under-withheld means a balance due. Your cost is zero beyond the administrative work of calculating and remitting it.
Withholding is progressive where payroll taxes are flat. The first dollars are taxed at 10 percent, higher dollars at higher marginal rates, and the standard deduction shelters a chunk entirely. Two employees with the same salary can have very different withholding if one claims different W-4 adjustments, while their payroll taxes are identical to the penny.
Three practical consequences. First, budgeting: only the employer share of payroll taxes plus unemployment taxes belongs in your labor-cost math; withholding never does. Second, liability: withheld income tax and the employee share of payroll taxes are trust fund taxes, money you hold in trust for the government, and officers can be held personally liable for failing to remit them. Third, the additional Medicare tax: the 0.9 percent on wages over $200,000 is withheld from the employee like income tax but reported like payroll tax, a hybrid your payroll system must handle.
Self-employed workers pay SECA tax instead of FICA: 12.4 percent Social Security to the wage base plus 2.9 percent Medicare on all net earnings, effectively both halves. They also pay income tax on the same earnings, usually through quarterly estimated payments instead of withholding. The oft-cited 15.3 percent self-employment tax is just the combined employer and employee shares of payroll tax, which is why going from W-2 to 1099 feels like a tax increase even before income tax enters the picture.
Take a $5,000 monthly paycheck. Social Security withholding is a flat $310 (6.2 percent). Medicare withholding is a flat $72.50 (1.45 percent). Federal income tax withholding might be $600 or $900 or $400 depending on the W-4: filing status, other income, deductions claimed. The flat lines are payroll taxes; the variable line is income tax. Your matching cost as the employer is $382.50 on that paycheck, the payroll tax match, plus unemployment taxes. The $600-plus of income tax withholding costs you nothing beyond the effort of remitting it.
No. Income tax withholding is a prepayment of the employee's own income tax. The employer remits it but pays none of it. The employer does pay the matching share of Social Security and Medicare taxes.
FICA is the law that imposes the payroll taxes: the 6.2 percent Social Security and 1.45 percent Medicare taxes, split between employer and employee. SECA is the self-employment equivalent.
They are separate taxes with separate rates and rules: Social Security at 6.2 percent up to the $184,500 wage base, Medicare at 1.45 percent with no cap. They fund different programs.
No. Withholding is a prepayment estimate. Your actual income tax is computed on your return; withholding that exceeds it comes back as a refund.
← Back to the employer payroll tax calculator 2026
Figures: 2026. Sources: the Social Security Administration (2026 contribution and benefit base), the Internal Revenue Service (FUTA, deposit rules), and the US Department of Labor. This page is for planning only and is not financial, tax, or legal advice. Verify with the cited source or a qualified professional.