Employment Taxes vs. Payroll Taxes
Payroll taxes and employment taxes are taxes that employers are required to pay directly to the IRS. While these taxes seem similar, they do have some slight differences. Employment taxes encompass all taxes employers must pay if they have employees, and payroll taxes are those taxes related to Form 941.
Payroll taxes include Social Security and Medicare contributions and they are reported on IRS Form 941.
Employment taxes are paid directly to the IRS by an employer. Employment taxes include Social Security and Medicare taxes, Federal Unemployment Tax Act (FUTA) taxes, and federal income tax.
Payroll Taxes
Payroll taxes are a specific type of employment tax. Payroll taxes consist of the Federal Insurance Contributions Act (FICA) tax. FICA taxes are a combination of Social Security and Medicare taxes.
Social Security Tax
- Funds benefits for retirement, dependents of retired workers, and the disabled and their dependents.
Medicare Tax
- Funds medical benefits for people age 65 and older, the disabled, and individuals with qualifying health conditions
2021-2022 FICA tax rates and limits
| Employee Pays | Employer Pays | |
| Social Security tax | 6.2% ($147,000 in 2022) | 6.2% ($147,000 in 2022) |
| Medicare tax | 1.45% | 1.45% |
| Total | 7.65% | 7.65% |
Payroll taxes must be reported quarterly on Form 941, the Employer’s Quarterly Tax Return. Employers use Form 941 to report income taxes, Social Security tax, or Medicare tax withheld from employees’ paychecks as well as report their portion of Social Security and Medicare tax.
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Employment Taxes
Employers must deposit and report employment taxes. Employment taxes are federal and state taxes related to employees’ taxable compensation. Employment taxes are paid to the IRS directly from the employer.
Employment taxes include:
- Federal income tax
- Federal Insurance Contribution Act (FICA) tax
- Federal Unemployment (FUTA) tax
- State unemployment (SUTA) tax
Income tax is paid exclusively by employees. This is determined by information provided by employees on Form W-4.
FICA is comprised of Social Security and Medicare taxes and is paid equally by employers and employees.
FUTA taxes are paid by employers based on the number of employees they have and unemployment rates. Only an employer pays these taxes.
State Unemployment tax is paid by employers, although a few states require some employee contributions.
Employers are required to deposit employment taxes to the IRS either on a monthly or semi-weekly deposit schedule. Monthly deposits are due by the 15th of the following month, and semi-weekly deposits are due on by the Wednesday following a Wednesday, Thursday, or Friday payment.
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