Employer payroll taxes are one of the things that makes outsourcing payroll attractive to many companies. Tax withholdings need to be deducted from pay and distributed to the correct taxation agency. Errors can be costly in fines and penalties, but many companies successfully process payroll from start to finish in-house.

All employers are required to match employee OASDI (Old-Age, Survivors, and Disability Insurance, i.e., Social Security) and Medicare contributions. Federal taxes are deducted from qualified employees and state taxes apply in most states. In addition, employers pay quarterly Federal Unemployment Tax Act (FUTA) taxes. Other taxes may apply in some states.