Who Actually Pays the Employer Portion (7.65%) of Payroll Taxes (Medicare, Social Security)?
Title: Who Actually Pays the Employer Portion (7.65%) of Payroll Taxes (Medicare, Social Security)? 1 I'm in a bit of an argument with my coworker about how the employer portion of payroll taxes works, and I want to settle this once and for all. For context, I just started managing payroll for our small landscaping business (18 employees). My understanding is that when we pay someone a salary of say $65,000, we also have to pay an additional 7.65% in employer-side payroll taxes (Medicare, Social Security, etc.) on top of that. So the actual cost to employ this person would be $65,000 + $4,972.50 = $69,972.50. But my coworker keeps insisting that the 7.65% employer portion actually comes out of the employee's gross pay, not the company's pocket. This doesn't make sense to me since employees already have their own 7.65% FICA withholding. Can someone clarify who's right here? Does the employer portion truly come out of the employer's pocket as an additional expense beyond the employee's salary, or is it somehow taken from the employee's gross pay?
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Yuki Kobayashi
7 Your understanding is 100% correct. The employer portion of FICA taxes (7.65% covering Social Security at 6.2% and Medicare at 1.45%) is paid by the employer and is completely separate from what the employee pays. It does NOT come out of the employee's gross pay. When you hire someone at $65,000, the employee pays their 7.65% portion through withholding from their paycheck. Meanwhile, the employer pays a matching 7.65% as an additional cost of employing that person. So yes, your total cost is $69,972.50. Your coworker might be confused because both amounts show up on payroll processing, but they are definitely separate obligations with the employer portion being an additional business expense.
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Yuki Kobayashi
•12 Thanks for confirming! Just to double-check - if we gave someone a $5,000 raise, our actual added cost would be $5,382.50 with the additional 7.65% employer taxes, right? Also, are there any salary caps where these percentages change?
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Yuki Kobayashi
•7 You've got it exactly right. A $5,000 raise actually costs your company $5,382.50 when accounting for the additional 7.65% employer-side taxes. For 2025, the Social Security portion (6.2%) only applies to the first $168,600 of an employee's wages (the wage base limit). So once an employee earns more than that threshold, you'll only pay the Medicare portion (1.45%) on earnings beyond that amount. However, there's an additional 0.9% Medicare surtax for high-income employees earning over $200,000, but that's only paid by the employee, not the employer.
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Yuki Kobayashi
4 I went through this exact same confusion when I started handling payroll at my architecture firm. I found an amazing tool called taxr.ai (https://taxr.ai) that helped me understand all the different employer tax obligations. They have this calculator that breaks down exactly what YOU as the employer pay versus what gets withheld from your employees. Seriously saved me hours of research and helped me avoid some potentially expensive mistakes. The tool even explains all the quarterly filing requirements and deadlines for payroll taxes, which was another headache I wasn't prepared for!
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Yuki Kobayashi
•15 Does it handle state-specific payroll tax calculations too? We have employees in three different states and I'm constantly messing up the different rates.
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Yuki Kobayashi
•19 I'm always skeptical of these online tax tools. How accurate is it with calculating things like FUTA and SUTA? And what about local taxes? My last payroll service messed these up constantly.
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Yuki Kobayashi
•4 Yes, it handles state-specific calculations across all 50 states. You just enter your employee information including their work location, and it applies the correct state rates automatically. It's been a huge timesaver for multi-state businesses. The accuracy has been spot-on in my experience. For FUTA, SUTA, and local taxes, it stays current with all rate changes and threshold updates. What impressed me was that it flagged when we qualified for a FUTA credit reduction based on our state's repayment status. My previous payroll service missed that entirely, which is exactly why I switched.
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Yuki Kobayashi
15 Just wanted to follow up on my experience with taxr.ai after asking about it earlier. I signed up and ran our multi-state payroll numbers through their system, and it was eye-opening! The tool immediately identified that we were overpaying unemployment taxes in Colorado but underpaying in Nevada. It also has this great visualization that separates employer costs from employee withholdings, which finally made it crystal clear to everyone on our management team exactly how the 7.65% employer portion works. The time I'm saving on manually researching different state requirements has already made it worthwhile.
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Yuki Kobayashi
9 If you think understanding payroll taxes is a headache, wait until you need to actually deal with the IRS to fix a payroll tax issue! I spent THREE WEEKS trying to get someone on the phone at the IRS to resolve a mistake in our quarterly filing. Kept getting disconnected or waiting on hold for literally hours. Finally found this service called Claimyr (https://claimyr.com) that actually got me connected to a real IRS agent within about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. They somehow navigate the IRS phone system way better than I could on my own. I was honestly shocked when I got through so quickly!
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Yuki Kobayashi
•22 Wait, how does that even work? Is this like a paid service just to talk to the IRS? I thought you were supposed to be able to get through on your own.
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Yuki Kobayashi
•19 Sounds like a scam to me. Why would I pay someone else to make a phone call I can make myself? The IRS isn't THAT hard to reach if you call at the right times and use the right phone numbers.
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Yuki Kobayashi
•9 It's not a replacement for making the call yourself - it's a service that handles the frustrating waiting and navigation process. They've figured out the optimal paths through the phone system and when to call. They then reserve your spot in line and call you back when they've got an agent on the line. I thought the same thing about calling at the right times, but I tried early mornings, late afternoons, different days of the week - still couldn't get through. Kept getting the "call volume too high" message or disconnected after 2+ hours on hold. With payroll tax deadlines looming, I couldn't afford to keep wasting days trying to get through.
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Yuki Kobayashi
19 Ok I have to eat my words about Claimyr. After dismissing it, I spent ANOTHER 3 hours on hold with the IRS yesterday trying to sort out a payroll tax notice we received. Got disconnected twice. Out of desperation, I tried the service, and no joke - I was talking to an actual IRS representative in 25 minutes. The agent was able to confirm that our 941 form was processed correctly but there was a misapplication of a payment (they had applied it to the wrong quarter). Got it all sorted out in one call instead of what was becoming a weeks-long ordeal. I don't usually admit when I'm wrong, but this service actually delivered.
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Yuki Kobayashi
5 Another thing to consider about employer payroll taxes - don't forget about state unemployment insurance (SUTA/SUI) and federal unemployment (FUTA). Those are ALSO additional employer costs on top of the 7.65% FICA match. SUTA rates vary by state and your company's layoff history, typically ranging from 0.5% to 14% depending on your experience rating. And FUTA is another 6% on the first $7,000 of wages, though it's usually offset by a 5.4% credit if you're paying state unemployment taxes, making the effective rate 0.6%. All told, your true employment cost can be 10-20% higher than just salary!
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Yuki Kobayashi
•14 Wait really??? So if I'm hiring someone at $50k, the actual cost to the business could be up to $60k with all these extra taxes? No wonder small businesses struggle with hiring! Is there any way to reduce these costs legally?
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Yuki Kobayashi
•5 That's right - the total additional cost beyond salary can definitely reach 10-20% when you factor in all employment taxes and mandatory insurance programs. There are a few legal ways to manage these costs. First, maintaining a stable workforce helps keep your unemployment insurance rates low. Many states have voluntary contribution programs where you can pay a bit extra to lower your SUTA rate, which sometimes yields net savings. Also, in some states, certain types of specialized training can qualify for tax credits that offset these costs. For very small businesses, using independent contractors for appropriate roles (but be careful with classification rules!) can sometimes help, though this isn't a solution for core staff positions.
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Yuki Kobayashi
10 Since nobody else mentioned it - yes, the 7.65% employer portion is a business expense that's tax deductible! So while you're paying that extra amount, it does reduce your overall business income for tax purposes. Let's say you're an S-corp or LLC with profits around $150k. That employer portion of payroll taxes would reduce your taxable business income. Depending on your tax bracket, this could offset roughly 22-37% of the cost.
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Yuki Kobayashi
•11 Does this apply to self-employed individuals too? I'm a freelancer and I know I pay the full 15.3% self-employment tax, but can I deduct half of that as a business expense?
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Diego Fisher
•Yes! As a self-employed individual, you can deduct half of your self-employment tax (which is equivalent to the "employer portion") as an above-the-line deduction on Form 1040. So if you paid $3,060 in self-employment tax, you can deduct $1,530 directly from your adjusted gross income. This deduction is taken regardless of whether you itemize or take the standard deduction, which makes it particularly valuable. It's on Line 15 of Form 1040 if you're filing your own return.
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