Guide

How to run payroll for one employee

· Last updated Nov 2026 · Figures are estimates, not tax or insurance advice.

Once you have an EIN, state accounts, and (where required) workers' compensation, you still have to pay the person correctly and send taxes to the IRS and your state. This guide is a map of the federal payroll job for a single W-2 employee, with Indiana unemployment figures where we have official numbers. It is not a substitute for IRS Publication 15 or your accountant.

What you withhold, and what you pay yourself

From each paycheck you generally withhold federal income tax (based on the employee's Form W-4), the employee share of Social Security and Medicare, and any required state or local income tax. You also pay, from your own funds, the employer share of FICA and unemployment taxes.

For 2026, IRS Publication 15 and Topic 751 set the Social Security tax at 6.2% for the employer and 6.2% for the employee on wages up to $184,500, and Medicare at 1.45% each on all wages. The Social Security Administration confirms the $184,500 wage base. There is no Medicare wage cap. Additional Medicare Tax of 0.9% can apply to an employee's wages above $200,000; that extra amount is withheld from the employee only, with no employer match, as Topic 751 explains.

Unemployment taxes

FUTA is an employer-only federal tax. The statutory rate is 6.0% on the first $7,000 of wages. Most employers receive a 5.4% credit, leaving a net 0.6%, or $42, when wages exceed $7,000. Credit-reduction states can owe more; the IRS updates that list after November 10 of the tax year. See the FUTA credit reduction page and Instructions for Form 940.

State unemployment (SUTA) uses a state wage base and your assigned rate. Indiana DWD uses a $9,500 wage base and lists 2.50% as a typical new-employer rate. Other states differ; the calculator uses the U.S. DOL January 2026 table and leaves industry-average states blank until you enter a rate.

Forms and the rulebook

Publication 15 is the employer's tax guide for withholding, deposit due dates, and the main returns. Employers commonly file Form 941 (quarterly federal employment tax), Form 940 (annual FUTA), and Form W-2 / W-3 for annual wage reporting, plus state withholding and unemployment returns. Deposit schedules depend on your tax liability and the rules in Publication 15; we do not invent a threshold here. Read the current publication for the schedule that applies to you.

You must also have a completed Form I-9 and, in Indiana, report the hire within 20 days. Those steps sit beside payroll, not inside the tax deposit itself. See the Indiana registrations checklist.

Doing it yourself versus software

Nothing requires you to buy payroll software. Many one-person shops still prefer a service because it calculates withholdings, files returns, and sends W-2s. If you shop for one:

• Gusto's pricing page, fetched November 9, 2026, lists a Simple plan at $49 per month plus $6 per person — $660 a year for one employee — with unlimited payroll runs and month-to-month billing. Plus and Premium plans are listed at higher public prices.
• Paychex's official comparison page describes packages and tax filing but does not publish a dollar price. We did not invent one.

The FirstHire calculator uses $660 as an editable default for software. Partner links: Gusto and Paychex. Compare current terms yourself, and read our Compare current terms on each provider's official site, or read our Gusto vs Paychex guide.

Payroll mistakes can mean penalties. Use Publication 15, your state agency instructions, and a qualified payroll provider or accountant when you are unsure. This page is a summary of published rules, not a filing calendar for your account.