Tiffany Thompson · 9/29/2026
At first glance, payday seems simple: the employees are paid, and everyone goes home happy. That's that. In fact, however, it is essential that every employer understands what employment taxes are before paying their employees. Employment taxes include a number of taxes which employers may be required to withhold, pay, deposit and report. Making a mistake about them can result in costs and paperwork at the most inconvenient time.
Employment taxes are taxes that relate to the payment of employees, some of which are deducted from an employee's paycheck and others of which are paid directly by the employer. For the majority of employers in the United States, the principal federal employment taxes are:
What's important is that all of these taxes aren't assessed and collected in the same manner. Some are split between the employee and the employer, and others are the concern of the employer alone. Payroll should be considered as something that goes beyond working out a person's salary. Several tax calculations may be required before the money reaches the employee's bank account.
Here's a simple breakdown.
Payroll and employment taxes are frequently used together. They are not, in fact, the same thing. Payroll involves the calculation and payment of employees' wages. Employment taxes form part of that process. For example, payroll may involve calculating:
It all depends on the employee's salary, their tax position, and the relevant federal, state and local regulations. Before payday, the employer usually has to decide how much tax should be taken out of each employee's wages and how much the company itself is required to pay. That is to say, an employee who is earning $4,000 does not necessarily result in the employer having to pay $4,000. The employer's payroll taxes and other costs associated with employing the person may raise the real cost of hiring that individual. One reason why businesses should consider payroll costs instead of just salaries when preparing their budgets is that the actual cost of employing someone can be higher than their stated salary.
The calculation of the tax is half the task. Employers also have to make and submit payments of employment taxes on time. Typical federal tax deposits consist of:
Mistakes made when paying taxes can go beyond just causing an accounting headache. If the employer does not correctly carry out the obligation to withhold, make deposits, or pay taxes, the business could be subject to fines and might have to pay extra taxes. Also, the IRS regards some of the taxes that have been withheld as funds held on the government's behalf. So employers must treat those funds with care. Even if the payroll deadline is missed on a Friday, tax authorities usually do not regard Friday afternoon as an excuse.
The simplest method for a business is to include employment taxes as part of each payroll cycle. Before paying employees, check: