In the US, payroll tax means the employment taxes on wages: Social Security at 6.2% each for employer and employee, Medicare at 1.45% each, federal unemployment (FUTA) tax paid only by the employer, plus the income tax you withhold. In Australia, payroll tax is a separate state tax on employers, such as 5.45% on NSW wages above a $1,200,000 annual threshold (as of October 2026).
Search 'payroll tax' and you'll get two very different answers, because the phrase means one thing in the US and another in Australia. Here's what the IRS and Revenue NSW say, so you know which taxes come out of a paycheck, which ones the business pays on top, and which returns you file.
The US payroll taxes at a glance
| Tax | Who pays | Rate (IRS, as of October 2026) |
|---|---|---|
| Social Security | Employer and employee | 6.2% each, 12.4% total, on wages up to $184,500 for 2026 |
| Medicare | Employer and employee | 1.45% each, 2.9% total, no wage limit |
| Additional Medicare | Employee only (employer withholds) | 0.9% on wages over $200,000, no employer match |
| FUTA (federal unemployment) | Employer only | 6.0% on the first $7,000 per employee, usually 0.6% after state credit |
| Federal income tax | Employee (employer withholds) | Based on the employee's Form W-4 and Publication 15-T |
FICA: the part both sides pay
Social Security and Medicare taxes together are FICA. IRS Topic 751 says the employer and employee each pay 6.2% for Social Security and 1.45% for Medicare. Only Social Security has a wage base limit, $184,500 for 2026 earnings, so once an employee passes it in a year, Social Security stops for the rest of that year but Medicare carries on. That's why a high earner's take-home pay often rises late in the year, and why payroll needs the year-to-date figure for every employee.
The extra 0.9% Additional Medicare tax is easy to get wrong. You must start withholding it in the pay period when an employee's wages go over $200,000 in the calendar year, regardless of their filing status, and there's no employer match.
FUTA: the tax only the employer pays
FUTA is paid from your own funds, never withheld from staff. Topic 759 says you're liable if you paid $1,500 or more in wages in any calendar quarter, or had an employee for some part of a day in 20 or more different weeks, in the current or previous year. The rate is 6.0% on the first $7,000 of each employee's wages, but paying your state unemployment tax in full and on time usually earns a credit of up to 5.4%, leaving 0.6%.
The insight most new employers miss: the full credit also depends on your state not being a credit reduction state. Topic 759 says that's a state that hasn't repaid what it borrowed from the federal government to pay unemployment benefits, and the Department of Labor names those states each year. If you run payroll yourself, free payroll software can at least keep the wage base and deadlines straight.
The US returns you'll file
- Form 941, the Employer's Quarterly Federal Tax Return, or Form 944, the Employer's Annual Federal Tax Return.
- Form 940 each year, for FUTA tax.
- Form 943 if you have agricultural employees, and Form 945 for withheld income tax on non-payroll payments.
- Forms W-2 for each employee and Form W-3 to send them to the Social Security Administration.
- Deposits by electronic funds transfer, on the schedule set out in Publication 15.
The IRS says Forms W-2 must be e-filed if you file 10 or more in a calendar year. And remember that people you pay as contractors aren't on payroll at all; the 1099 vs W-2 difference decides which rules apply.
How payroll tax works in Australia
In Australia, payroll tax isn't deducted from employees. Revenue NSW describes it as a tax paid by employers, assessed on the wages they pay, and it's collected by the state revenue office rather than the ATO. Using New South Wales as the example, Revenue NSW says businesses that pay wages in NSW must register when their total monthly Australian wages exceed the monthly threshold, must lodge an annual return each financial year, and pay monthly or annually.
| NSW tax year | Tax-free threshold | Rate |
|---|---|---|
| 1 July 2026 to 30 June 2027 | $1,200,000 | 5.45% |
| 1 July 2025 to 30 June 2026 | $1,200,000 | 5.45% |
Revenue NSW also notes that businesses can be grouped, and only one business in a group can claim the tax-free threshold, which matters if you run more than one company. If you employ people outside NSW, check the revenue office in that state or territory, as it runs its own payroll tax.
My verdict
If you employ people in the US, payroll tax isn't one tax but four, and the easy mistakes are the 0.9% Additional Medicare tax and assuming the FUTA credit is automatic. In Australia, it's a state matter that only bites above the threshold. Either way, good payroll software does the arithmetic, but you still need to know what it's doing.
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Frequently asked questions
What is payroll tax in the US?
The employment taxes on wages: Social Security and Medicare (FICA), FUTA unemployment tax and the federal income tax employers withhold.
What are the Social Security and Medicare rates for 2026?
6.2% each for employer and employee for Social Security on wages up to $184,500, and 1.45% each for Medicare with no wage limit.
Do employees pay FUTA tax?
No. The IRS says employers pay FUTA tax only from their own funds, and it isn't withheld from pay.
What is the FUTA tax rate?
6.0% on the first $7,000 of each employee's wages, usually reduced to 0.6% by a credit of up to 5.4% for state unemployment tax.
Is payroll tax a federal tax in Australia?
No. It's paid by employers to the state revenue office. In NSW, Revenue NSW charges 5.45% on wages above a $1,200,000 annual threshold.
When do I withhold Additional Medicare tax?
From the pay period in which an employee's wages go over $200,000 in the calendar year, with no employer match.
Which returns report US payroll taxes?
Form 941 or Form 944 for withheld income tax, Social Security and Medicare, Form 940 for FUTA, and Forms W-2 and W-3 at the end of the year.
Is e-filing Forms W-2 required?
Yes, if you file 10 or more in a calendar year, according to the IRS. Federal tax deposits must also be made by electronic funds transfer.
