How payroll tax works

When you pay W-2 wages — to yourself as an S-corp owner, to a spouse or family member, or to any employee — the IRS taxes the wage twice: once on the employee side (withheld from the paycheck) and once on the employer side (paid by the business on top of the wage).

Employee-side taxes (withheld from paycheck)

Social Security: 6.2% of wage up to the $184,500 wage base (TY 2026)
Medicare: 1.45% of wage, no cap
Additional Medicare: +0.9% on wage above $200,000 single / $250,000 MFJ
Federal income tax: based on Form W-4 elections; the calculator above approximates using the 2026 brackets
State income tax: withheld at the rate you specify (or 0 for no-income-tax states)

Employer-side taxes (paid by business)

Social Security: 6.2% match (same wage base of $184,500)
Medicare: 1.45% match (no cap, employer doesn't owe the additional 0.9%)
FUTA (Federal Unemployment Tax Act): 0.6% on the first $7,000 of wages per employee per year (after the standard 5.4% state unemployment credit)
SUTA (State Unemployment Tax): varies by state, typically 1-6% on the first $7-15k of wages — not included in this calculator since it's state-specific
Workers' compensation insurance: required in most states; varies by industry — not a federal payroll tax but a related cost

The 15.3% combined rate (key insight)

Employee FICA (6.2% + 1.45% = 7.65%) plus employer FICA (6.2% + 1.45% = 7.65%) equals 15.3% of the wage in payroll taxes. That's identical to the self-employment tax rate paid by sole props on Schedule C — which is by design. The IRS taxes self-employment income at 15.3% (you pay both halves) so it matches what an employee+employer combination would have paid.

S-corp election: paying yourself a "reasonable salary"

The most common reason self-employed people use this calculator: setting their S-corp salary. After electing S-corp status (Form 2553), the IRS requires you to pay yourself a "reasonable salary" subject to payroll tax — and only the salary portion is subject to FICA. Distributions on top of the salary (the rest of the business profit) are NOT subject to FICA, which saves 15.3% of every dollar above the salary line.

Example: $150,000 in S-corp profit, $80,000 reasonable salary, $70,000 distribution.

Without S-corp (sole prop): 15.3% × 0.9235 × $150,000 = $21,200 in SE tax
With S-corp: 15.3% × $80,000 = $12,240 in payroll tax + $0 on the $70,000 distribution = $12,240 total
Savings: ~$8,960/year

The catch: "reasonable salary" must be defensible — what would an unrelated party doing the same work be paid? IRS audit risk increases sharply if the salary looks abnormally low relative to total profit. Full S-corp election guide.

Hiring family members (sole prop owner)

Sole proprietors can hire their spouse or children with favorable tax treatment:

Children under 18 working in a sole prop: exempt from FICA and FUTA per IRC §3121(b)(3) and §3306(c)(5). Pay them up to the standard deduction ($16,100 in 2026) and they owe zero income tax. Family-net savings can be $4,000+ per year per kid.
Spouses: subject to normal FICA but exempt from FUTA. Useful for shifting income across spouses for IRA contributions, retirement plan eligibility, etc.
Children 18-20 in a sole prop: subject to FICA, exempt from FUTA
S-corp or LLC taxed as corp: family-employee FICA exemptions don't apply — these only work for sole props and partnerships where both partners are parents.

How this calculator differs from typical payroll calculators

Built for owner-pay scenarios — most calculators target HR departments running 50-employee payroll. This one targets you setting your own S-corp salary.
Shows full cost to business — not just net pay. The employer-side FICA + FUTA is real money out of your business bank account.
Clear S-corp toggle — most payroll calcs assume employer pays employer-side; if you're a sole prop hiring a contractor (1099) instead of an employee (W-2), there's no employer-side at all. Use the 1099 vs W-2 calculator to compare.
Federal income tax withholding is approximate — actual W-4 elections, dependents, multiple jobs, etc. all affect the exact withholding number. The calc uses standard single/MFJ/HoH brackets as a baseline.

Related tools and guides

Estimates only — not tax, legal, or financial advice. Sources: IRC §3101, §3111 (FICA), §3301 (FUTA), §3121(b)(3) (family member exemptions), IRS Publication 15 (Employer's Tax Guide TY 2026), IRS Notice 2025-67 (TY 2026 wage base). Federal income tax withholding is an approximation using standard brackets; actual withholding depends on Form W-4 elections, additional withholding requests, and other factors. State unemployment tax (SUTA) and workers' compensation costs vary by state and industry — consult your state's labor department. For decisions affecting your finances, consult a licensed CPA or enrolled agent.

Payroll tax calculator (2026)

Employee withholding (paycheck deductions)

Employer-side cost (paid by business)