Hiring in the United States means navigating a layered tax system that operates at the federal, state, and sometimes local level. As an employer, you’re responsible for withholding the right amounts from employee paychecks, contributing your own share on top of those wages, and remitting everything to the correct agencies on time. This guide covers each obligation you’ll face, including a worked cost example so you can model the true cost of a US hire before you commit.
How employer taxes work in the us
The US payroll tax system splits obligations between federal and state governments. Federal rules apply uniformly across all 50 states, but state rules vary considerably. Wage bases, unemployment rates, income tax requirements, and minimum wages all differ by state, which means the cost and compliance burden of hiring in California looks quite different from hiring in Texas. Throughout this guide, you’ll see where federal rules are consistent and where state-level variation matters.
Employers must register for federal and state tax accounts, run payroll through an approved process, deposit withheld and employer-owed taxes on a regular schedule, and file quarterly and annual returns. Penalties for late deposits or incorrect filings can add up quickly, so getting the setup right from day one is important.
Federal payroll taxes: fica
The Federal Insurance Contributions Act (FICA) covers two taxes that fund Social Security and Medicare. Both you and your employees contribute to each.
Social security (oasdi)
You contribute 6.2% of each employee’s wages toward Social Security, and you withhold another 6.2% from their pay. For 2026, this tax applies only up to the wage base of $184,500 per employee per year. Once an employee’s earnings exceed that threshold, neither party owes additional Social Security tax on the excess.
Medicare (hi)
The Medicare portion is 1.45% from you and 1.45% withheld from the employee. Unlike Social Security, there’s no wage base cap here. Medicare taxes apply to every dollar of wages regardless of how much an employee earns.
Additional medicare tax
Employees who earn more than $200,000 in a calendar year are subject to an additional 0.9% Medicare tax on wages above that threshold. This is an employee-only tax with no employer match. You’re still responsible for withholding it once a single employee’s wages from your payroll cross $200,000 in a year, even if the employee’s combined wages from multiple employers would push them over the threshold earlier.
Your share of FICA taxes is deductible as a business expense, which partially offsets the cost.
Federal unemployment tax: futa
FUTA funds the federal unemployment insurance system. The gross rate is 6.0% on the first $7,000 of each employee’s wages per year. In practice, most employers qualify for a 5.4% credit for paying state unemployment taxes, which brings the effective net rate down to 0.6%. That works out to a maximum of $42 per employee per year at the net rate.
There’s one important exception: credit reduction states. When a state has borrowed from the federal unemployment fund and hasn’t repaid it, employers in that state lose part of their FUTA credit. California is a current example. If you employ people in a credit reduction state, your effective FUTA rate will be higher than 0.6%, and you’ll owe more than $42 per employee.
FUTA is paid entirely by the employer. Nothing is withheld from employee wages.
State unemployment tax: suta
Every state runs its own unemployment insurance program, funded through the State Unemployment Tax Act (SUTA). Rates and wage bases vary significantly by state and are set individually. Most states use wage bases higher than FUTA’s $7,000 threshold. Your SUTA rate is also experience-rated, meaning it adjusts based on how many of your former employees have claimed unemployment benefits.
When you’re budgeting for a new hire, you’ll need to look up the current wage base and your assigned rate in the specific state where that person works. New employers typically receive a standard rate while their experience record is being built.
Like FUTA, SUTA is an employer-only tax in most states.
State income tax withholding
Most US states require employers to withhold state income tax from employee wages, in addition to federal income tax withholding. You’ll need to register with the state tax authority, collect the state equivalent of a withholding form from each employee, and remit withheld amounts on a state-mandated schedule.
A handful of states have no state income tax at all: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. If your employees work in those states, you won’t have a state income tax withholding obligation there, though Washington does impose other payroll-related levies worth checking.
For federal income tax withholding, you base the amount on each employee’s Form W-4 and the applicable 2026 tax brackets. Your obligation is to withhold correctly and remit on time. The specific bracket rates are the employee’s concern for their own tax filing, but accuracy in withholding matters because under-withholding can trigger IRS notices tied to your account.
The aca employer mandate
If you have 50 or more full-time equivalent employees, you’re classified as an Applicable Large Employer (ALE) under the Affordable Care Act. This classification carries a mandatory health coverage obligation.
As an ALE, you must offer minimum essential coverage that provides minimum value to your full-time employees and their dependents. For 2026, coverage is considered affordable if the employee’s required contribution for self-only coverage doesn’t exceed 9.96% of their household income.
Two penalty structures apply if you fall short. Under Section 4980H(a), if you don’t offer coverage at all and at least one employee obtains subsidized coverage through the marketplace, you face a penalty applied across your full-time workforce. Under Section 4980H(b), if you offer coverage but it’s unaffordable or doesn’t provide minimum value, you face a separate per-employee penalty for each affected worker who gets a marketplace subsidy.
Staying under the 50 FTE threshold doesn’t automatically exempt you from all benefit considerations, but it removes the ACA mandate penalty risk.
What it costs to employ someone in the us
To make this concrete, here’s a worked example using a gross salary of $60,000 per year. These figures represent your total employer cost above and beyond the salary itself.
Base salary: $60,000
Employer FICA costs:
- Social Security (6.2% on $60,000): $3,720
- Medicare (1.45% on $60,000): $870
- Total FICA: $4,590
FUTA (0.6% on first $7,000): $42
SUTA: Varies by state and your experience rate. Using a hypothetical blended rate of 2.7% on a $12,000 wage base as an illustration: $324. Your actual figure will differ.
Total estimated employer overhead on a $60,000 salary: approximately $4,956 before benefits, workers’ compensation insurance, and any ACA-related costs.
Total cost to employ: approximately $64,956 per year, before benefits.
Benefits, particularly health insurance if you’re an ALE, add further cost. Employer 401(k) contributions don’t attract payroll tax and are deductible, which makes them a relatively efficient component of total compensation.
This example shows why “salary” and “total cost of employment” are meaningfully different numbers when you’re planning headcount.
How an EOR manages us employer taxes
If you’re hiring in the US without a legal entity in the relevant state, or if you want to reduce the complexity of managing multi-state payroll obligations, an Employer of Record (EOR) provides a practical path forward. The EOR becomes the legal employer of your US workers, handling FICA contributions, FUTA and SUTA registration and remittance, federal and state income tax withholding, ACA compliance tracking, and payroll filing across every state where your team is located.
This matters in the US specifically because each new state where you hire can trigger registration requirements, new tax accounts, and separate compliance obligations. An EOR absorbs that complexity so your team can focus on the work rather than the administration. You set the compensation and manage the day-to-day work; the EOR handles the employer tax and compliance layer.
If you want to see how RemotePass handles US employer taxes across your workforce, book a demo to walk through the specifics with our team.
