What's deductible
The employer half of Social Security (6.2% up to the wage base) and Medicare (1.45%, plus 0.9% additional on high wages) is deductible. FUTA (effective 0.6% after the state credit) is deductible. State unemployment insurance is deductible. State and local payroll taxes (workers' comp premiums, paid family leave assessments, training fund contributions) are deductible.
Where it goes
Schedule C line 23 ("Taxes and licenses"). The employee-side withholding (federal income tax, employee FICA, state withholding) is not your expense — it's the employee's tax that you forwarded.
Self-employment tax
A sole proprietor's self-employment tax is NOT a Schedule C expense. The deductible half of SE tax appears on Schedule 1 as an adjustment to income, not on Schedule C.
Penalties not deductible
Late-payment penalties, late-deposit penalties, and accuracy-related penalties on employment taxes are not deductible. Interest is deductible but penalties are not.
Trust fund taxes
Withheld federal income tax and employee FICA are "trust fund taxes" — money held in trust for the IRS. Failure to remit them creates personal liability for "responsible persons" under Section 6672 (the trust fund recovery penalty). Always pay employment taxes before any other creditor when cash is short.
Common mistakes that disallow the deduction
The recurring ways this deduction gets disallowed in examination cluster in four categories: (1) personal-use expenses bundled with business (the deduction is disallowed entirely or apportioned downward); (2) inadequate substantiation (no receipt, no invoice, no business-purpose note); (3) the wrong line on Schedule C (not fatal, but it weakens audit defense); and (4) double-counting with another line (for example, deducting an expense on Schedule C and also on Form 8829, or as a personal itemized deduction on Schedule A). The fix in every case is contemporaneous bookkeeping and a clean chart of accounts.
Where this fits in the larger Schedule C picture
Schedule C has more than two dozen named expense lines plus an "Other expenses" catch-all. For most small businesses, four or five lines drive the bulk of the deduction total — vehicle, home office, depreciation, contract labor or wages, and supplies — and the remaining lines individually contribute small amounts that nevertheless add up. Treating each named line as a recurring decision rather than an afterthought, and revisiting the categories each January, often surfaces $2,000–$5,000 in additional legitimate deductions that a less disciplined process would have missed entirely.