Cost of a Salary Increase (Employer View)

How this calculator works

Employer FICA — the matching obligation

Under IRC § 3111, employers pay taxes on wages that exactly mirror the employee share for Social Security and Medicare:

• Social Security (OASDI): 6.2% on wages up to the 2026 wage base of $184,500 per employee (SSA.gov).
• Medicare (HI): 1.45% on all wages with no ceiling (IRS Publication 15).

The Additional Medicare Tax (0.9%) applies only to the employee side once wages exceed $200,000 — employers do not pay it (IRC § 3101(b)(2)).

How the raise cost is computed

For both the current and post-raise salary, the calculator computes annual employer FICA:

• Employer SS = min(annual wage, 2026 SS wage base) × 6.2%
• Employer Medicare = annual wage × 1.45%

The total employer cost of the raise equals the salary delta plus the change in employer FICA obligations:

• Total cost = (new salary − current salary) + (new employer FICA − current employer FICA)

The per-paycheck figure divides the annual cost increase by the number of pay periods for the chosen frequency (exact arithmetic, no approximation).

The SS wage base cap matters

If the employee’s current salary already exceeds the $184,500 SS wage base, a raise generates no additional employer Social Security obligation — only additional Medicare at 1.45%. If the raise pushes wages across the cap mid-range, SS applies only to the portion below the cap. The calculator handles this correctly.

What this calculator doesn’t cover

FUTA (Federal Unemployment Tax): 6.0% on the first $7,000 of each employee’s wages per year (0.6% effective after the standard FUTA credit against SUTA). For employees already earning above $7,000, a raise has no FUTA impact at all, which is nearly universal for salaried employees. The cost is effectively $42/year per new employee and is excluded here as immaterial for raise-cost purposes.

SUTA (State Unemployment Tax): Rates and wage bases vary by state and employer experience rating — out of scope.

Benefits cost-share changes: Raises sometimes trigger benefit tier changes (e.g., employer 401(k) match percentage on a higher base). These are employer-plan-specific and cannot be generalized.

Income tax withholding: The employer withholds federal and state income taxes on the employee’s behalf but this is a pass-through, not an employer cost.

Last reviewed: June 2026

Frequently asked questions