Employee Benefits & Payroll Tax

Payroll taxes (2026)

• Social Security 6.2% + 6.2% up to $184,500. Medicare 1.45% + 1.45%, no cap.
• Additional Medicare Tax 0.9%, employee only; withhold above $200,000.
• Federal Unemployment Tax Act (FUTA): employer only, 0.6% net × $7,000 = $42 per employee.
• Self-employment: 92.35% × net income × 15.3%; deduct half; none under $400.

Excluded benefits

• Health insurance · group-term life to $50,000 · dependent care $7,500 (2026) · educational assistance $5,250 (incl. student loans).
• No-additional-cost services · employee discounts · working condition fringes · de minimis (not cash or gift cards).
• Transit and parking $340 per month each · meals and lodging for employer's convenience.

Stock options

Incentive options: no income at exercise (alternative minimum tax adjustment); hold 2 years from grant / 1 from exercise. Nonqualified: ordinary income at exercise.

Classification

Behavioral control · financial control · relationship.

Forms

W-2 by January 31 · 941 quarterly · 940 annual · 1099-NEC threshold $2,000 from 2026.

Exam traps

• The employer's half of payroll taxes is deductible by the employer; the employee's half is not deductible by the employee.
• Group-term life cover above $50,000: the cost of the excess cover is taxable wages.
• Selling incentive option shares before the holding periods are met (a disqualifying disposition) makes the bargain element ordinary income in the year of sale.
• The self-employed health insurance deduction isn't available for months when the taxpayer could join an employer-subsidized plan.