Insights
US Payroll Guide: FICA, Withholding, Forms 941 and W-2, and State Rules (2026)
Insights · By Chen ChunJie · Updated 6 November 2026
Running payroll in the US means withholding federal, state and sometimes local income tax, paying both shares of Social Security and Medicare, paying federal and state unemployment taxes, depositing taxes on the IRS schedule, filing Form 941 each quarter and issuing Forms W-2 by 31 January, while following the pay rules of each state where employees work.
Last reviewed in November 2026 against IRS Publication 15 and federal and state guidance. General information, not legal or tax advice.
One pay run, five outputs
Each run feeds these outputs. Check the official calendars for the exact dates.
| Output | What it is | When |
|---|---|---|
| Pay statement | Gross pay, deductions and net pay | Each pay date, in the format the state requires |
| Tax deposit | Withheld income tax and both shares of FICA | Monthly or semi-weekly |
| Form 941 | Quarterly federal return | By the end of the month after each quarter |
| State returns | Withholding and unemployment insurance | On each state’s schedule |
| Form W-2 and Form 940 | Annual wage statements and the FUTA return | By 31 January |
Payroll taxes in 2026
| Item | Employee | Employer |
|---|---|---|
| Social Security | 6.2% up to US$184,500 | 6.2% up to US$184,500 |
| Medicare | 1.45%, plus 0.9% above US$200,000 | 1.45% |
| FUTA | None | 6% on the first US$7,000, less a credit of up to 5.4% |
| State unemployment | In a few states | Rate and wage base by state |
| State disability or leave programmes | Where the state has one | Where the state has one |
The FUTA credit is reduced in states that owe federal loans, which raises the effective rate. Source: IRS Publication 15.
Income tax withholding
Employers withhold federal income tax using the employee’s Form W-4 and the IRS tables, plus state and local tax where it applies.
- Form W-4. Sets the employee’s federal withholding; many states have their own form.
- Supplemental pay. Bonuses can be withheld at a flat federal rate of 22%.
- Remote staff. State tax generally follows where the employee works, with some state-specific rules.
- Local taxes. Some cities and counties, such as New York City and Philadelphia, add their own.
Overtime, pay frequency and leave
| Item | Rule | Where it comes from |
|---|---|---|
| Overtime | 1.5 times the regular rate after 40 hours a week for non-exempt staff | Federal law, with daily overtime in some states |
| Minimum wage | US$7.25 federally | Many states and cities set higher rates |
| Pay frequency | From weekly to monthly | Set by each state |
| Paid sick leave | Accrual and use rules | Set by many states and cities |
| Final pay | From the last day to the next regular payday | Set by each state |
Exempt status depends on both the duties and the salary, so check each role before treating it as exempt.
Want this calculated every period? See Payroll Outsourcing in the US.
When someone leaves
- Final pay. Due on the state’s timeline, in some states on the last day of work.
- Accrued leave. Payable on exit in some states, such as California.
- Benefits. Health cover continuation notices may apply.
- Records. Keep payroll records for at least four years for tax purposes.
The payroll cycle, step by step
- Collect changes. New hires, leavers, hours, overtime, bonuses and benefit changes, by a fixed cut-off.
- Calculate. Gross to net, withholding and payroll taxes.
- Review and approve. Check variances against the last run.
- Pay. Salaries by direct deposit on the pay date.
- Deposit taxes. On the IRS and state schedules.
- File quarterly. Form 941 and state returns.
- Close the year. Forms W-2 and 940 by 31 January.
- Reconcile. Match payroll, deposits and returns every quarter.
What happens when payroll goes wrong
- Late deposits. IRS penalties from 2% to 15% of the unpaid tax, plus interest.
- Unpaid withheld tax. Responsible individuals can be personally liable for the trust fund recovery penalty.
- Wage claims. Unpaid overtime can be claimed with equal liquidated damages.
- State penalties. Late final pay can trigger waiting-time penalties in some states, such as California.
Getting set up as an employer
Before the first payroll, an employer needs a federal employer identification number, state withholding and unemployment insurance accounts in each state where employees work, workers’ compensation cover, and Forms W-4 and I-9 for each new hire.
FAQ: US payroll
What is Form 941?
The quarterly federal return for income tax withheld and both shares of Social Security and Medicare.
What is the Social Security wage base in 2026?
US$184,500. Medicare has no cap.
When are Forms W-2 due?
By 31 January, to employees and the Social Security Administration.
How often must I pay employees?
It depends on the state, from weekly to monthly.
Where is a remote employee taxed?
Generally in the state where they work, with some state-specific rules.
Do I need a US company to run payroll?
Yes, to be the employer. Without one, see Employer of Record in the US.
Need your US payroll calculated?
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