FICA, FUTA, and SUTA: the small-business explainer
The three U.S. payroll taxes you owe in addition to federal and state income tax withholding — what each one funds, who pays, and when.
Beyond federal and state income tax withholding, every U.S. employer owes three payroll-specific taxes: FICA (Social Security and Medicare), FUTA (federal unemployment), and SUTA (state unemployment). Each one funds a different program, has a different rate and wage base, and is reported on a different IRS form. This guide is the small-business explainer.
FICA: Social Security and Medicare
FICA is the Federal Insurance Contributions Act tax. It funds Social Security retirement and disability (the OASDI portion) and Medicare hospital insurance (the HI portion). The Social Security portion is 6.2% on the first $168,600 of wages in 2024 (the "Social Security wage base," which adjusts annually for inflation). The Medicare portion is 1.45% on all wages with no wage base, plus an additional 0.9% on wages above $200,000 (paid only by the employee). The employer matches the employee's 6.2% Social Security and 1.45% Medicare; the additional 0.9% is employee-only. FICA is reported quarterly on Form 941 and deposited per the IRS deposit schedule.
FUTA: Federal Unemployment Tax
FUTA funds the federal portion of the U.S. unemployment insurance program. The headline rate is 6.0% on the first $7,000 of each employee's wages, but employers in good standing on their state SUTA receive a 5.4% credit, leaving an effective FUTA rate of 0.6% — a maximum of $42 per employee per year. FUTA is paid by the employer only (not withheld from employees), reported annually on Form 940, and deposited quarterly when the accrued liability exceeds $500.
SUTA: State Unemployment Tax
SUTA is the state-level analog to FUTA. Each state sets its own wage base (often higher than FUTA's $7,000), its own new-employer rate, and an experience-rated rate that adjusts based on the employer's history of unemployment claims. New employer rates typically range from 1.0% to 3.5% depending on the state and industry; experience-rated rates can range from near-zero (employers who never lay off) to 8% or higher (employers with frequent layoffs). SUTA is reported on each state's quarterly wage detail report and deposited on the state's deposit schedule.
Who pays which
FICA is split 50/50 between employer and employee (with the additional Medicare portion employee-only). FUTA and SUTA are employer-only — they cannot be deducted from the employee's wages even with consent, and any deduction triggers state and federal labor enforcement. Self-service payroll software handles all three taxes automatically; trying to compute them by hand is feasible but prone to wage-base errors when employees cross thresholds mid-year.
The employer's annual obligations
For each calendar year, the typical employer files four Form 941s (one per quarter), four state quarterly wage reports (one per quarter), one Form 940 (annual FUTA), and one W-2 for each employee plus a Form W-3 transmittal. The federal forms are due January 31 for the prior year (W-2 to employee, W-2 to SSA, Form 940), April 30, July 31, October 31, and January 31 (Form 941), and as scheduled per the IRS deposit calendar.
The new-employer SUTA trap
New employers in most states pay SUTA at a flat new-employer rate for the first 2–3 years, then convert to an experience-rated rate based on their actual unemployment claim history. The experience rate can rise sharply after a layoff, even a small one — a small business that lays off three employees in one year may see its SUTA rate climb from 2% to 5% the following year, which on a $20,000-per-employee wage base is $600 of additional tax per employee. Read about unemployment claim management before any layoff to understand which separations count against your experience rate and which don't.
Where to find current rates
Federal FICA wage bases and Medicare thresholds update every January and are published in IRS Publication 15 and the SSA's annual COLA announcement. Federal FUTA's effective rate has been 0.6% since 2011. State SUTA wage bases and rates are published by each state's labor department; the rates change annually and the wage bases change as state legislatures revise them. Don't assume last year's rates apply this year — verify in January.