So You Want To Run A Business - Payroll Tax Breakdown

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I recently set up Payroll via Paychex for my company. It is an eye opener to see exactly what taxes an employer pays on top of the taxes already deducted from each employee’s paycheck. I mean, I always heard that my employers were paying taxes for me when I was an employee, but I never knew how much. Till now.

This is helpful when figuring out your total compensation as it is part of the hidden cost of going into business for yourself. Of course, we are a C-Corp so these figure may be different for other types of businesses. I wouldn’t know and this does not qualify as tax advice.

Tax Breakdown

Tax Rate
Social Security 6.2%
Medicare 1.45%
Federal Unemployment 0.8%
State Unemployment 0.8%

State of CA. This changes.

Some Notes:

Social Security has a wage base limit of \$94,200. So if an employee makes more than that (including bonuses etc...), the employer will only be taxed 6.2% of \$94,200.

Medicare has no wage based limit.

The last two taxes are only taxed on the first \$7000 of wages per employee per year. So the employer pays 3.4% of \$7000 for each employee assuming each makes \$7000 or more a year.

So make sure these figure into your cash-flow estimates. Also, don’t forget that by law, most companies are required to carry Workman’s compensation insurance. That will cost you a small chunk of change per year as well.