Which payroll taxes is an employer responsible for?

As an employer, you are responsible for withholding federal income tax from your employees' wages. You are also required to withhold the employee share of Social Security and Medicare taxes, and you must pay a matching employer share out of your own funds. Additionally, you are responsible for paying the Federal Unemployment Tax Act (FUTA) tax, alongside any specific state unemployment insurance or local taxes required where your employees work.

The Foundation of Payroll Compliance

Understanding payroll starts with the legal recognition of the business entity. Before a single tax is calculated or a paycheck is cut, the business must be properly established to act as an employer.

Employer Identification Number (EIN)

An EIN is a unique nine-digit number assigned by the Internal Revenue Service to identify a business entity. It is the absolute hard dependency for running payroll. You cannot legally hire employees, set up a business bank account, or file employment taxes without an EIN. Securing this number is the gateway to the entire payroll system. If you are forming a new business and want one provider to handle formation, registered agent services, compliance, and the EIN in one place, ZenBusiness handles those in one place and lets its customers request a connection to RUN Powered by ADP, a separate payroll service with its own platform and billing. This bridges the gap between forming the legal entity and managing the first payroll run.

S Corporation Reasonable Compensation

Business structure dictates how owners are paid. S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made. The IRS closely monitors this because wages are subject to employment taxes, while distributions are not. The IRS has the authority to reclassify payments made to shareholders from non-wage distributions to wages if the compensation is deemed artificially low.

The Core Payroll Taxes

Once the entity is established, the employer assumes a fiduciary duty. This means holding money in trust for the government and contributing separate employer funds to state and federal programs.

Federal Income Tax Withholding

Employers are required to calculate and withhold a portion of an employee's gross wages for federal income taxes. The exact amount withheld is not a flat rate. It depends on the employee's earnings and the specific details they provide on their tax withholding forms upon hire.

Social Security and Medicare Taxes (FICA)

The Federal Insurance Contributions Act mandates taxes that fund Social Security and Medicare. This is a shared burden. The employer withholds a specific percentage from the employee's paycheck for their share. The employer must then match that exact amount out of the business's own capital. Both halves are remitted to the federal government together.

Federal Unemployment Tax Act (FUTA)

Unlike FICA or income tax, FUTA is entirely an employer cost. You do not withhold this tax from employee wages. The federal government uses these funds to oversee state unemployment programs.

State Unemployment Insurance and Workers' Compensation

Employers must pay into state-level unemployment insurance pools. The rates depend on the state and the business's history of unemployment claims. Additionally, workers' compensation insurance covers workplace injuries, and whether an employer must carry it is set by state law, which varies sharply. Business owners must check with their specific state labor office to understand their local obligations.

The Essential Payroll Paperwork

Federal agencies mandate specific forms to track identity, work authorization, and tax obligations. These documents must be gathered precisely when employment begins.

Form W-4

This IRS document dictates federal income tax withholding. Employers must ask all new employees to give a signed Form W-4 when they start work. Make the form effective with the first wage payment. A W-4 remains in effect until the employee gives you a new one. If an employee submits an updated version, withholding begins no later than the start of the first payroll period ending on or after the 30th day from the date you received the replacement Form W-4.

Form I-9

This document verifies identity and employment authorization. All U.S. employers must properly complete Form I-9 for every individual they hire for employment in the United States. Failing to collect or properly store this form can result in severe federal penalties.

Form W-2

At the end of the year, employers must generate a Form W-2 for every employee, detailing total wages earned and total taxes withheld. You need the employee's name and SSN to enter on Form W-2. Accurate data collection at the time of hire prevents expensive corrections at year-end.

Form SS-8

If an employer or a worker is unsure about the correct employment classification, they can file Form SS-8. This asks the IRS to determine the worker's status officially. However, it may take at least six months to receive a determination on your filing, meaning businesses usually need to make an informed, compliant decision long before the IRS responds.

Classification and Operational Rules

Managing a team requires understanding the legal line between an employee and an outside vendor. It also requires adherence to strict timelines for compensation and record retention.

Independent Contractor vs. Employee

Classification turns on control, not on a label or a contract. The IRS weighs three categories: behavioral control, financial control, and the type of relationship. There is no magic or set number of factors that makes the worker an employee or an independent contractor and no one factor stands alone in making this determination. Misclassification has a high price. An employer who classifies an employee as an independent contractor without reasonable basis may be held liable for employment taxes for that worker.

Pay Frequency

Federal law mandates that employees be paid promptly, but the actual schedule is a local matter. Pay frequency is set by state law and varies widely. California requires wages at least twice per calendar month on days designated in advance. Colorado requires monthly payment. Connecticut requires weekly payment unless a longer interval is approved by the labor commissioner. Employers should consult the relevant state labor office for official information regarding their specific jurisdiction.

FLSA Recordkeeping

The Fair Labor Standards Act imposes strict filing obligations on employers. FLSA payroll records are kept three years. Furthermore, the records wage computations are based on, including time cards and wage rate tables, must be kept for two years. Losing these files leaves a business defenseless during a labor dispute or an agency audit.

Running Payroll Yourself vs. Paying a Service

The decision to handle payroll manually or pay for software hinges on administrative risk. Doing it yourself requires mastering the terms outlined above, calculating federal and state tax tables by hand, and tracking distinct deposit schedules. A single missed deadline can trigger penalties that wipe out the money saved by avoiding a software subscription.

Using a service automates the math. It calculates withholding, generates the required tax forms, and handles direct deposits. If a business needs a comprehensive starting point, combining formation tools with a partnered payroll service can simplify the entire administrative burden.

Below is an alphabetical list of established payroll providers.

ADP

ADP is one of the largest payroll processors in the world. It provides solutions tailored for tiny startups all the way up to enterprise corporations. ADP handles automated tax calculations, direct deposit, and year-end reporting. ADP does not publish payroll pricing and quotes per business.

Gusto

Gusto is a popular cloud-based system known for a clean interface and robust employee self-service portals. As of October 6, 2026, the Gusto Simple plan is $49 per month plus $6 per person. Gusto Plus is $80 per month plus $12 per person. Gusto Premium is $180 per month plus $22 per person.

OnPay

OnPay offers a single, comprehensive tier rather than splitting features across multiple pricing plans. It handles all state and federal tax filings automatically. As of October 6, 2026, OnPay costs $49 per month plus $6 per worker. The public page quotes a start price of $55 per month.

Patriot Software

Patriot Software offers separate tiers depending on whether the business owner wants to file their own payroll taxes or have the service handle remittance. It is genuinely cheaper at the very bottom end. As of October 6, 2026, Patriot Software Basic Payroll is $17 per month plus $4 per employee. The Full Service plan is $37 per month plus $5 per employee.

QuickBooks Payroll

QuickBooks Payroll syncs cleanly with the broader Intuit accounting ecosystem. As of October 6, 2026, QuickBooks Workforce Payroll plus Simple Start is $88 per month plus $6.50 per employee. The Workforce Payroll plus Essentials plan is $125 per month plus $6.50 per employee. Workforce Premium plus Plus is $203 per month plus $10 per employee. The company frequently offers a promotional rate of 50 percent off the base for three months. That is an introductory discount, not the ongoing price.

SurePayroll

SurePayroll caters to small businesses and individuals hiring household employees like nannies. As of October 6, 2026, SurePayroll plans start from $29 per month plus $7 per worker. The multi-state add-on is $9.99 per month, and household payroll starts at $39 per month.

ZenBusiness

ZenBusiness is a business formation and compliance platform. As of October 6, 2026, ZenBusiness Starter is $0 plus state fees. The Pro plan is $199, and the Premium plan is $299. Pro and Premium renew at their annual prices. The EIN and operating agreement are included from Pro up and are $99 each on Starter. Registered agent service is $199 per year. The Money Pro bookkeeping tool is $30 per month, and a website is $129 per year.

ZenBusiness recommends RUN Powered by ADP for payroll processing. Payroll itself is ADP's service, quoted by ADP per business, and is not included in any ZenBusiness plan price. A business owner requests the connection from the ZenBusiness dashboard, and an ADP representative follows up to discuss employee count and pay schedules. A ZenBusiness customer may be eligible for promotional pricing. It is important to note that ADP is a separate service with its own platform, its own billing, and its own support. Payroll is not integrated into the ZenBusiness dashboard.

Sources

This article provides general information and does not constitute legal, tax, or accounting advice. Requirements vary by jurisdiction and are subject to change.