When the employer pays the employee’s share of payroll taxes

Why the number grows

Suppose you agree to pay an employee $500 and also to cover their share of social security and Medicare tax. The tax you cover is itself a benefit to the employee, so it counts as extra wages. Those extra wages are subject to the same taxes, which increases the tax you pay, which increases the wages again. Publication 15-A (2026) says exactly this: the increase in wages for your payment of the employee’s taxes is also subject to employee social security and Medicare taxes, which again increases the additional taxes you must pay. The loop has a closed form, which is why the publication gives a divisor instead of an iteration.

The formula for 2026

Divide the stated pay, the amount you pay without taking into account your payment of employee social security and Medicare taxes, by a factor for the year. The factor is 1.0 minus the combined employee social security and Medicare tax rate for the year the wages are paid. For 2026 the publication gives the factor as 0.9235 (1.0 minus 0.0765). The result is the wages to report in box 1 and the social security and Medicare wages to report in boxes 3 and 5 of Form W-2. Then box 4 is box 3 times 6.2% and box 6 is box 5 times 1.45%.

The publication’s example

Donald Devon hires Lydia Lone for one week in 2026 and pays her $500 for the week, agreeing to pay her part of the social security and Medicare taxes. Dividing $500 by 0.9235 gives $541.42, which is reported as wages in boxes 1, 3 and 5 of Form W-2. Social security tax is $541.42 times 6.2%, or $33.57, entered in box 4. Medicare tax is $541.42 times 1.45%, or $7.85, entered in box 6. Although Donald did not actually withhold those amounts, he reports them as withheld on Form 941 or Form 944 and is responsible for the employer share of these taxes. For FUTA tax and federal income tax withholding, Lydia’s weekly wages are $541.42. Enter 500 in the calculator to reproduce every figure.

When stated pay is above $170,385.75

The wage base complicates the formula. The publication gives the cutoff as $170,385.75, which is the 2026 social security wage base of $184,500 times 0.9235. For an employee with stated pay above that figure, the portion of stated wages subject to social security tax is $170,385.75, and wages for social security are capped at $184,500, which you enter in box 3. The social security tax in box 4 is $11,439.00 ($184,500 times 0.062). For Medicare wages in box 5, subtract $170,385.75 from the stated pay, divide the result by 0.9855 (1.0 minus 0.0145) and add $184,500.

The publication’s example uses stated pay of $180,000. The excess over $170,385.75 is $9,614.25. Divided by 0.9855 that is $9,755.71, and adding $184,500 gives Medicare wages of $194,255.71, so the Medicare tax in box 6 is $2,816.71. The wage amount for federal income tax withholding is $180,000 plus $11,439.00 plus $2,816.71, or $194,255.71, which goes in box 1. Enter 180000 to see all of it.

Filing and deposits

Even though no tax is actually deducted from the employee’s pay, you report these amounts as withheld on Form 941 (or Form 944) and pay them, along with the employer share, as employment taxes. The publication says that you are liable for timely depositing or paying the increased taxes associated with the wage increase, and that you should report the increased wages on the appropriate lines of Form 941 for the quarter in which the wages were paid, or on Form 944 for the year. Our payroll deposit schedule page covers the timing.

Household and agricultural employers

The discussion above does not apply to household and agricultural employers. If you pay a household or agricultural employee’s social security and Medicare taxes, the payments must still be included in the employee’s wages, but the publication says this wage increase is not itself subject to social security or Medicare tax. In that case there is no gross-up loop, and the calculator on this page does not apply.

One more caution from the publication: the information does not take into account an employer that chooses to pay the Additional Medicare Tax on behalf of the employee. The figures here also use only the 6.2% and 1.45% rates, and do not cover that case. For the standard rates on a normal paycheck, see our FICA tax calculator.

Sources

• IRS Publication 15-A, Employer’s Supplemental Tax Guide (2026): section 7, Special Rules for Paying Taxes: Employee’s Portion of Taxes Paid by Employer. Read November 2, 2026.

Edition read: Publication 15-A (2026), for use in 2026. Rates, wage bases and dollar limits on this page are the 2026 figures printed in that edition; check the current publication and the IRS employment tax pages for your tax year. This page summarizes the publication and does not replace it.