What Is the Average Employer Payroll Tax?

The Internal Revenue Service collects the federal unemployment tax, Social Security tax and Medicare tax employers in the United States are supposed to pay. The state unemployment office collects state unemployment tax; in some cases, job-training tax apply. The average employer tax depends on the type of tax and the required calculation.

Federal Unemployment Tax

Employers pay federal unemployment tax according to the rate shown in the IRS Circular E publication for the respective tax year. As of 2011 and before July 1, an employer pays 6.2 percent of the first $7,000 paid to each employee; after June 30, it pays 6 percent. If the employer appropriately paid its state unemployment, it can take the maximum credit of 5.4 percent against its federal unemployment tax, which reduces the rate to .8 percent before July 1 and .6 percent following June 30.

To arrive at the average per employee, the employer multiplies the tax rate by the annual wage base. For example, .8 percent x $7,000 = $56 per employee.

State Unemployment Tax

An employer pays state unemployment tax based on the rate the state sets and the annual wage base. Employer rates vary and generally depend on the longevity of the business and the amount of former employees who have claimed benefits on the employer's account. For example, as of 2011, the tax rate for a new employer in Ohio (besides construction) is 2.7 percent, up to the first $9,000 paid to each employee. Based on the employer's experience, the rate can increase to a maximum of 9.6 percent.

The employer multiplies its tax rate by the state's annual wage base to arrive at the average state unemployment tax per employee.

FICA Taxes

FICA includes both Medicare and Social Security taxes; the Federal Insurance Contributions Act requires the IRS to collect these taxes. As of 2011, the Medicare tax rate is 1.45 percent of all employee taxable wages. The Social Security tax rate is 6.2 percent, up to the annual wage limit of $106,800.

The average FICA tax varies by employee, since the amount depends on the employee's taxable compensation. For example, for an employee who earns $2,000 biweekly of which all of it is taxable, the employer's average tax biweekly for that employee is $29 ($2,000 x .0145).

Considerations

A few states, such as Arizona and California, require employers to pay a job or employment training tax. For example, as of 2011, both Arizona and California require a .10 percent job-training tax on the first $7,000 paid to each employee. To arrive at the average per employee, the employer multiplies the required tax rate by the annual wage base.

References

• IRS: (Circular E), Employer's Tax Guide
• Oregon.gov: 2010 Employer Payroll Tax Rates
• Ohio.Department of Taxation: Contribution Rates
• Arizona Department fo Economic Security: Arizona Job Training Tax collected on behalf of Arizona Department of Commerce
• California Employment Development Department: Rates, Withholding Schedules, and Meals and Lodging Values
• SSA: Social Security and Medicare Tax Rates