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E-commerce Payroll Tax
employmentTaxes levied on employers and employees based on wages paid. In the US, this primarily includes Social Security (6.2%) and Medicare (1.45%) taxes, paid by both employer and employee.
Definition
Payroll taxes are mandatory contributions that fund social insurance programs. In the US, the Federal Insurance Contributions Act (FICA) requires both the employer and employee to pay 6.2% for Social Security (on wages up to the annual Social Security wage base cap, which the SSA updates each year) and 1.45% for Medicare (no cap). This means the employer pays an additional 7.65% on top of every dollar of wages up to the cap.
Beyond FICA, employers also pay federal unemployment tax (FUTA, 0.6% after credits on the first $7,000 of wages) and state unemployment tax (SUTA, which varies widely by state and employer history). Some states also levy additional payroll taxes for disability insurance, paid family leave, or transit programs. The total employer-side payroll tax burden is typically 8-12% of wages.
For freelancers and self-employed individuals, the tax impact is doubled because they must pay both the employer and employee portions, resulting in a 15.3% self-employment tax on net earnings. This is why freelancers must charge significantly more per hour than an equivalent employee earns, and why the contractor-vs-employee analysis must account for which party bears the payroll tax burden.
Formula
Employer Payroll Tax (US) = Wages x 7.65% (FICA) + FUTA + SUTA Example
An employer pays a worker $95,000 annually. Employer FICA = $95,000 x 7.65% = $7,268. FUTA = $7,000 x 0.6% = $42. SUTA (example: 2.5% on first $12,000) = $300. Total payroll tax = $7,610, or approximately 8% of wages.
Related Terms
Employer Cost
employmentThe true total cost to a company of employing one person, including salary, payroll taxes, benefits, equipment, office space, and all overhead allocated per employee.
Total Compensation
employmentThe complete value of everything an employee receives in exchange for their work, including base salary, bonuses, equity, benefits, retirement contributions, and any other perks.
Benefits Rate
employmentThe percentage of an employee's salary that the employer spends on benefits such as health insurance, retirement contributions, paid time off, and other non-wage compensation.
Cost Per Hire
employmentThe total cost of filling a job vacancy, including advertising, recruiter fees, interview time, onboarding, and any signing bonuses or relocation expenses.
Put It Into Practice
Use these calculators to apply payroll tax to your own numbers.
Employee Cost Calculator
Calculate the true cost of an employee beyond just their salary.
Open calculator →Freelance Tax Calculator
Estimate quarterly tax payments and total tax liability for freelancers.
Open calculator →Contractor vs Employee Calculator
Compare the true cost of hiring a contractor vs a full-time employee.
Open calculator →