Understanding Payroll Taxes: FICA, FUTA, and More

Payroll taxes fund Social Security, Medicare, and unemployment programs — but the acronyms make them confusing. Here's what each one means and who pays it.

FICA: Social Security and Medicare

The Federal Insurance Contributions Act (FICA) covers two taxes that are split between employer and employee:

High earners pay an additional 0.9% Medicare surtax above certain thresholds.

The wage base limit

Social Security only applies up to an annual wage base limit, which the IRS adjusts each year. Earnings above it aren't subject to the 6.2% — which is why high earners sometimes see their take-home rise late in the year. Medicare has no such ceiling; it applies to every dollar.

Where FICA shows up on a stub

FICA rarely appears under that name. Look for OASDI or FED OASDI/EE for the Social Security half and FED MED/EE for Medicare. Our guide to pay stub abbreviations and codes decodes the rest of the labels.

Self-employment is the exception

There's no employer to split FICA with when you work for yourself, so contractors pay both halves — 15.3% — as self-employment tax. That difference is the single biggest financial consequence of the W-2 vs. 1099 classification.

Federal income tax withholding

Unlike FICA, federal income tax is paid entirely by the employee. The amount withheld depends on the W-4 form and the IRS tax tables.

Why withholding isn't your tax bill

Withholding is an estimate collected in advance, not the final amount you owe. That's settled when you file. A large refund means you over-withheld all year; a large bill means the opposite. Either way the fix is the same form — see how to fill out a W-4 to adjust it.

Pay frequency also affects the per-check figure, because each period's withholding is calculated as that period's share of an annual liability. The same gross pay withholds differently on a monthly versus a biweekly schedule.

FUTA and SUTA: unemployment taxes

• FUTA (Federal Unemployment Tax Act) — paid by employers, funds federal unemployment programs.
• SUTA (State Unemployment Tax Act) — paid by employers at state-set rates.

Employees don't pay FUTA or SUTA in most states. Because these are employer-side taxes, they generally don't appear on an employee's pay stub at all — a common source of confusion when someone tries to reconcile what their employer reports against what their stub shows.

Why SUTA rates vary

State unemployment rates are experience-rated: employers who lay off more workers pay more. A new business typically starts at a standard rate and moves up or down over time based on its claims history.

What employers must remember

1. Withhold the correct amounts each pay period.
2. Match the employer share of FICA.
3. Deposit taxes on schedule with the IRS and state.
4. File quarterly (Form 941) and annual returns.
5. Give each employee an itemized stub showing what was withheld — required in most states.

If you're setting payroll up for the first time, the small business payroll checklist covers registration and classification before any of this applies. And once stubs are going out, reading one line by line is the fastest way to confirm the withholding is landing where it should.

This is general information, not tax advice. Rates, thresholds, and wage base limits change annually — confirm current figures with the IRS or your state agency.

Getting these numbers right is exactly what OakPaystubs automates — enter the details and the correct federal and state taxes are calculated for you.