Payroll tax rates like income tax, Social Security (6.2 percent each for both employer and employee) and Medicare (1.45 percent each) are set by the IRS. However, each state specifies its own rates for income, unemployment and other taxes. Below is a state-by-state map showing payroll tax rates including supplemental taxes and workers’ compensation.
Employers often find it challenging to keep up with income, federal, state and local employment taxes. Therefore, we recommend using a top-rated payroll provider like Gusto. Gusto ensures tax deductions and payments are processed according to federal, state and local laws. That keeps your business compliant, even as tax rates change.
How Payroll Taxes Work
In addition to income taxes, Social Security and Medicare — collectively known as Federal Insurance Contribution Act (FICA), are taxes that employers and the self-employed pay to the IRS. The IRS and states also require monies to be paid for unemployment insurance, referred to as the Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Act (SUTA). Combined, these are employer payroll taxes.
2018 Payroll Tax Rates by State Map
Hover over the state below to find the payroll tax rates for your state. You can then choose to click that state for more information. You can also look up state-by-state details with links to more data using the table below.
2018 Payroll Tax Rates by State Search
Select your state from the drop-down box below for specific state-by-state information. You’ll find whether your state has an income tax as well as if they have any local taxes. You’ll also find a government link to learn more about your state’s employment taxes.
Federal Payroll Tax Rates
At the federal level, in addition to income tax, there are two categories of employment taxes: FUTA and FICA. We’ll cover each briefly as you’ll process these as tax deductions on employees’ paychecks. You must also pay these taxes on your employees’ behalf, regardless of which state you’re in.
- Income tax: The tax rate is based on withholdings chosen on employee’s W-4 form
- FUTA: This 6 percent federal tax is to cover unemployment; in most cases, you’ll be credited back 5.4 percent of this amount, resulting in a net tax of .6 percent
- FICA: This 15.3 percent federal tax is made of up two parts: 12.4 percent to cover Social Security and 2.9 percent to cover Medicare. For employees earning more than $200,000, the Medicare tax rate goes up by an additional .9 percent; therefore, FICA can range between 15.3 percent and 16.2 percent
State Payroll Tax Rates
Some states have an income tax; others don’t. But all states have state unemployment taxes. The percentage of SUTA varies by state. Each state determines the wage base or minimum earnings required for SUTA to be deducted. Of course, they may not call it SUTA. They may refer to it as unemployment insurance (UI), for example.
In addition, the SUTA rates are affected by an employer’s specific unemployment history and industry. In addition, some states assign a generic new employer rate that may be higher or lower than what the employer will pay once they have been in business for a period of time, and each state determines the time frame. For example, if one employer has higher unemployment claims than another, that employer will pay a higher unemployment rate.
Here are two examples.
New employers pay 3.4 percent in SUTA for employees making more than $7,000 per year. They’ve renamed SUTA as State Unemployment Insurance (SUI). Existing employers pay between 1.5 percent and 6.2 percent depending on their unemployment experience. Those who layoff or terminate fewer employees will typically have a lower rate. These taxes are calculated on top of the FICA and FUTA taxes that employers in California and all states must pay.
In New York
New Employers pay 3.6 percent in SUTA for employees making more than $11,100 per year. They refer to it as Unemployment Insurance Contribution Rate (UI). Existing employers pay between .09 percent and 8.3 percent. Employers with few unemployment claims may pay nearly 10 times less than those with high unemployment claims. In New York, as in most states, it pays to reduce your turnover.
Other State Payroll Tax Rates
Some states like Mississippi, Nevada and New Hampshire have no other employment taxes. However, they’re the exception. Most states have state income taxes, supplemental taxes or taxes like workers compensation, disability or local taxes.
Here are the most common state taxes.
State Income Taxes
Most states have an income tax. They tax a portion of an employee’s income based on withholding tables. Each state sets its own withholding tax rates, such as Arizona, which withholds between .08 percent and 5.1 percent, depending on the number of deductions an employee is eligible for.
In states with large urban areas, you’ll often find local taxes added to your employment tax requirements. For example, San Francisco, Denver and Newark, New Jersey, require employees to pay local income taxes. Other states like Kentucky, Ohio and Pennsylvania collect local income taxes in many cities.
Some states tax supplemental wages like bonuses, commissions, overtime and severance pay as examples. About half of U.S. states have no supplemental tax while the rest range from 1.84 percent to 25 percent. For instance, in California, employees are taxed 6.6 percent for most supplemental pay but are taxed at 10.23 percent if the supplemental pay is received from a bonus or stock option.
Workers’ compensation is purchased as private insurance by business owners in most states. However, states like New Mexico, Oregon and Washington require it to be paid as a tax. As an example, Oregon employees pay 1.4 cents per hour while their employers match that rate for a total of 2.8 cents an hour paid to Oregon to cover state-managed workers’ compensation.
Some states like California, Hawaii and New York ensure that workers in their state have disability insurance coverage. Therefore, that additional insurance is included as a tax in those states. It ranges from 0.19 percent in New Jersey to 1.10 percent in Rhode Island. Disability insurance differs from workers’ compensation, which covers on-the-job injuries only, by covering all injuries and health issues that affect a worker’s ability to work.
Some states have begun to mandate employer-provided sick leave or paid sick time off. New York, for example, deducts 0.126 percent of the employee’s weekly wages to cover paid leave for employees in that state.
Payroll Tax Compliance Providers
Employers managing payroll taxes in one state may find it easy to keep up with the various and sundry state tax requirements. However, once you hire employees in multiple states, you can become overwhelmed quickly. It’s often best to work with a payroll provider to ensure tax compliance. Most will calculate deductions and pay tax agencies on your behalf.
Here are three common options to manage federal and state payroll taxes.
Payroll software like Gusto is a great option for managing payroll taxes. Prices start at $45 a month for one employee. Additional employees cost $6 per month, per employee. Rather than concern yourself with tax rates, Payroll software like Gusto has state-by-state tax rate data baked into its payroll database.
You merely input the employees work and home location addresses, and the software processes the deductions and makes tax payments for you. Here is an article describing the best payroll software for small business if this is an option you want to explore.
Payroll services that manage payroll on your behalf are another option. Once you provide them with the hours that employees work each pay cycle, they run your payroll and provide the correct payroll deductions. Then, they provide payroll checks, and/or paystubs and direct deposit on your behalf.
Payroll services tend to be priced a bit higher than payroll software. They charge based on the number of payrolls you run or the number of employees you have. Here is an article showcasing the best payroll services for small business.
Although it’s a more expensive option, starting at $100 per month on up, some choose to outsource their payroll to a third-party provider — perhaps the same person who does their business bookkeeping and accounting. Here are tips to help you choose a bookkeeper.
However, one of the risks of using a bookkeeper is that they may not be aware of labor law or tax requirements in all states.
Professional Employer Organization
A professional employer organization (PEO) is a great option if you not only want to ensure payroll tax compliance but are approaching that 50-employee mark and need to think about offering benefits to your staff. Starting as low as $49 per month, per employee, it’s the highest priced option, however.
In addition, you must meet the requirements of the PEO before they’ll be willing to partner with you as a co-employer. On the plus side, the tax liability is on the PEO, not you. You’ll often save on worker’s compensation as well as they can pool your workers with those of other firms to get lower rates. Here is an article on the best PEOs for small business.
To find a PEO that serves your industry, location and company size, contact The Huldisch Group for a free consultation. It will ask some questions in order to help you find the best PEO match for your business.
Payroll Tax Rate Complexities
Each state does its own thing in terms of whether to have a state income tax, when tax payments are due, what rates they use and what forms to file. We’ll cover some of the differences below to make you aware of what may vary in each state.
States That Have a State Income Tax
Not all states have a state income tax. However, in states that do, the employee must be asked what amount to withhold from the paycheck. That amount is to be withheld by the employer and paid to the state. The income tax rate varies by state and also varies by person based on factors such as their marital status and number of exemptions they claim.
Employees provide this information on the equivalent of a federal W-4 form, which may be called by a different name in each state. For example, South Dakota has no state income taxes, North Dakota does and uses the Federal W-4 to track withholdings. New Jersey also has state tax withholdings and tracks them on an NJ-W4 form.
Quarterly Tax Payment Due Dates
Quarterly FUTA taxes are due if you owe more than $500 in taxes each quarter. The due dates are:
- Quarter one: April 30
- Quarter two: July 31
- Quarter three: October 31
- Quarter four: January 31
However, SUTA tax due dates vary by state. For example, in Michigan, the taxes are due on the 25th of the month instead of the end of the month: April 25, July 25, October 25 and January 25. Failing to meet the deadline may result in a penalty or late tax payment interest assessment. Therefore, you not only have to know what taxes to withhold and pay but also when and how to pay it — by state.
Credit Reduction States
Some states, like California, have taken loans from the federal government when they could not meet their unemployment liabilities. Instead of getting a 5.4 percent credit reduction, employers in California will see their credit deduction reduced by 2.1 percent.
The IRS explains it like this: generally, employers may receive a credit of 5.4 percent when they file their Form 940 (PDF), Employer’s Annual Federal Unemployment (FUTA) Tax Return, to result in a net FUTA tax rate of 0.6 percent (6.0 percent – 5.4 percent = 0.6 percent).
What that means is that you’re likely to pay higher taxes when hiring employees in California, as the credit reduction goes up by .03 percent a year, driving your tax up by that amount annually.
Form names vary across states as well. While Form 940 is used to pay FUTA and Form 941 for FICA, each state has its own form names. For example, in Arizona, SUTA is paid using a UC-018 form and, in Illinois, the form name is EA-50. For more information, refer to your state tax website.
Alternatives to Payroll Tax
Business owners who don’t want to mess with payroll taxes have a few options. They can work with a co-employer, temporary agency or independent contractors. Of course, there are requirements as to when you can pay a worker as a contractor vs. an employee.
Here are three alternatives to prevent you from having to manage payroll taxes:
A PEO is a co-employer that your business can work with to save you from having to manage payroll tax deductions and quarterly payments. The co-employer will “hire” your employees and manage their payroll and taxes. You, in turn, will pay a monthly fee that ranges from $49 to hundreds of dollars a month per employee. The price often includes setup fees, the number of employees and upcharges for additional states or additional services, such as workers compensation insurance. The workers work for the PEO (on paper at least), not you.
If you are looking for a PEO that best fits your company size and industry, contact The Huldisch Group for a free consultation. It will ask some questions in order to help you find the best PEO match for your business.
Freelancers and gig workers are independent self-employed contractors who work for you based on a project or deliverable. They’re not employees and, as such, they pay their own taxes. Just be sure you document your work agreement in a contract to make sure you’re both on the same page regarding work expectations.
You can find freelancers on freelance websites. In fact, we recommend Fiverr as a great freelance website you can use to find talented independent contract workers who have been rated by their clients.
Temporary employees can often be hired to work for your company. You pay a fixed rate to the staffing agency or temporary staffing service and they, in turn, manage all the human resources (HR) and payroll compliance, including employment taxes for the worker. The best way to find a temp agency near you is to search Google for the terms “staffing agency” or “temporary staffing” in your location.
For example, you may pay a temp agency a $15 per hour fee for the use of an employee that gets paid $10 per hour. The temp agency manages all employment aspects of the worker while you’re paying a service fee for the “use” of that employee. The temp agency is the employer, not you.
Frequently Asked Questions (FAQs) About Payroll Tax Rates
Here are some questions small business owners may have about payroll taxes.
What Are the Penalties for Making a Mistake in Employee Tax Payments?
The IRS can levy tax penalties as high as 5 percent a month for unpaid taxes. Penalties are based on failing to file by the deadline, filing the wrong amount, failing to pay or for paying with a bad check. However, as long as you attempt to comply with the law, you may find that some relief from tax penalties is available.
If I Outsource Payroll and Taxes, Am I Still Liable for a Tax Mistake?
Yes, the business entity is required to pay employment taxes. If you outsource your payroll to a third party, you will retain liability for any tax mistakes. It’s a good idea to choose a vetted professional or payroll service to ensure payroll tax compliance. Here are some outsourced payroll providers we recommend.
Where Can I Find Tax Withholding Tables?
The IRS posted 2018 tax withholding tables in January of 2018. In addition, the IRS provides a tax withholding calculator to help determine how much tax will be withheld from an employee’s paycheck. Each state also publishes tax withholding tables which you can find on the state tax website we provided in the table above.
Is There a Quick Way to Find Out What Taxes to Take Out of an Employee’s Check?
If you don’t have payroll software and simply need a quick way to determine what taxes to take out of an employee’s check, we recommend using a free payroll calculator like Paycheck Manager. Free payroll software is also available.
The Bottom Line
Taxes aren’t easy, and payroll taxes are complicated as you have to comply with both federal and state requirements. That’s a hassle if you have employees working in more than one state, as each state has different tax rates, rules, forms and due dates.
We recommend Gusto HR and payroll software due to its easy-to-use interface, self-service options for employees, federal, state and local payroll tax compliance and direct deposit. Plus, when you’re ready to add employee benefits, Gusto can do that too.