The math, in the open
How the employee
estimate is built.
A planning model for one typical U.S. W-2 employee over a full calendar year, using 2026 federal parameters.
Last reviewed: . State rates and insurance prices are not supplied by this site.
Start with annual cash pay
Hourly: hourly rate × regular paid hours per week × paid weeks + additional cash pay
Additional cash pay covers expected bonuses, commissions, and total overtime pay. The model does not decide whether overtime is required or calculate a premium. Paid leave belongs in paid salary or paid weeks, not in a second expense entry.
Add employer costs
| Item | Model |
|---|---|
| Social Security | 6.2% × the lesser of cash pay or $184,500 |
| Medicare | 1.45% × all cash pay |
| FUTA | Selected effective rate × the lesser of cash pay or $7,000 |
FUTA starts without an assumed rate. You may select 0.6% only as a full-credit assumption, 6% with no credit, or enter a verified effective rate. A credit reduction can increase the bill. We do not apply an unverified 2026 state credit-reduction table.
The model uses employer shares only. Employee income-tax withholding and employee FICA are already part of gross pay, not extra employer costs. Additional Medicare Tax has no employer matching share.
Your business-specific amounts
Annual state and local employer taxes and workers’ compensation come directly from your entries. Benefits and recurring overhead are monthly amounts multiplied by 12. Retirement is your estimated effective contribution percentage multiplied by all cash pay. The model does not check retirement plan limits or employee eligibility.
Separate recurring and first-year budgets
First-year cost = recurring annual cost + one-time hiring and setup
Monthly average = annual cost ÷ 12
Amounts are calculated without intermediate rounding and displayed to the nearest dollar. Monthly averages are for budgeting, not payment scheduling. The comparison shows the difference between two entered budgets; it is not a forecast of savings.
Know when the model does not fit
Cash pay is assumed to have the same taxable base for Social Security, Medicare, and FUTA. The benefits field assumes nontaxable employer benefits. Pretax employee deductions, taxable noncash benefits, exemptions, and special payroll arrangements can produce different tax bases.
This model does not cover household or agricultural employment rules, contractor classification, multi-state allocation, successor-employer rules, or wages already paid in the year. For a midyear hire, do not read the result as a remaining-year tax projection. Seasonal hourly pay can be entered, but monthly benefit and overhead entries must still represent one-twelfth of their annual costs.
Training time, reduced output during onboarding, cover during leave, revenue, and income-tax deductions are not automatically valued. Add actual incremental cash costs where appropriate; avoid counting wages twice.
Sources and review record
- IRS Publication 15 (2026), Employer’s Tax Guide: employer FICA rates, FUTA rate, wage base, and credit conditions. Reviewed September 28, 2026.
- Social Security Administration: Contribution and Benefit Base: the $184,500 taxable maximum for 2026. Reviewed September 28, 2026.
- IRS Topic 751: Social Security, Medicare, and the employer treatment of Additional Medicare Tax. Reviewed September 28, 2026.
- IRS: FUTA credit reduction: why the full FUTA credit may not apply. Reviewed September 28, 2026; no final 2026 state rates are embedded.
What still needs verification
Before relying on an estimate, confirm your state unemployment rate and wage base, applicable local and employer leave or disability taxes, workers’ comp quote, FUTA credit eligibility and year-end credit reductions, benefit tax treatment, and retirement plan terms. Verify overtime pay under the rules that apply to the job. Recheck federal parameters before using a new tax year.