Federal & State Payroll Tax Rates for Employers
Charlette has over 10 years of experience in accounting and finance and 2 years of partnering with HR leaders on freelance projects. She uses this extensive experience to answer your questions about payroll.
Heather is a staff writer and payroll specialist with several years of experience working directly with small business owners. Her expertise allows her to deliver the best answers to your questions about payroll.
This article is part of a larger series on How to Do Payroll.
Both employers and employees are responsible for payroll taxes. Federal tax rates, like income tax, Social Security (6.2% each for both employer and employee), and Medicare (1.45% each, plus an additional 0.9% withheld from the wages of an individual paid more than $200,000), are set by the IRS. However, each state specifies its own tax rates, which we will cover in more detail below.
If you need help calculating, paying, and filing payroll taxes, consider using Gusto. It houses tax rates for all states, so you don’t have to research. And if Gusto makes a mistake or pays late, it will cover any penalties you incur. Try it free for 30 days.
Federal Payroll Tax Rates
There are two categories of employment taxes at the federal level in addition to income tax: 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 the state in which you operate.
- Income Tax: The tax rate is based on withholdings chosen on the employee’s W-4 form.
- FUTA: This 6% federal tax on the first $7,000 of each employee’s earnings is to cover unemployment; in most cases, you’ll be credited back 5.4% of this amount for paying your state unemployment taxes on time, resulting in a net tax of 0.6%.
- FICA: This 15.3% federal tax is made up of two parts: 12.4% to cover Social Security and 2.9% to cover Medicare. Social Security has a wage base limit, which for 2022 is $147,000. For employees earning more than $200,000, the Medicare tax rate goes up by an additional 0.9%; therefore, FICA can range between 15.3% and 16.2%.
To learn more about federal Social Security, Medicare, and unemployment taxes, take a look at our guides on FICA and unemployment taxes.
State Payroll Tax Rates
Some states have an income tax; others (like Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) don’t. The two states that tax investment income but do not assess personal income taxes are Tennessee and New Hampshire. However, all states have state unemployment taxes.
Check out our state payroll directory for specific state-by-state payroll tax rate information. You’ll find whether your state has an income tax and any local taxes.
The percentage of State Unemployment Tax (or, SUTA) varies by state. Each state determines the wage base or minimum earnings required for SUTA to be deducted. Others may refer to it as unemployment insurance (UI).
Also, the SUTA rates are affected by an employer’s specific unemployment history and industry. Besides, some states assign a generic new employer rate that may be higher or lower than what the employer will pay once it has 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.
Below, are the most common state taxes that employers need to be aware of:
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 0.08% and 5.1%, depending on the number of deductions an employee is eligible for.
Local Income Taxes
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 require employees to pay local income taxes. Other states, like Kentucky, Ohio, and Pennsylvania, collect local income taxes in many cities.
Supplemental Taxes
Some states tax supplemental wages like bonuses, commissions, overtime, and severance pay as examples. Less than half of US states have no supplemental tax, while the rest range from 1.84% to 11%—except Vermont, which charges 30%. For instance, in California, employees are taxed 6.6% for most supplemental pay but are taxed at 10.23% if the supplemental pay is received from a bonus or stock option.
Workers’ Compensation
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 1.1 cents per hour, while their employers match that rate for 2.2 cents an hour paid to Oregon to cover state-managed workers’ compensation.
For more information on workers’ compensation and where to purchase it, check out our guide on workers’ comp.
Disability
Disability insurance differs from workers’ compensation, which covers on-the-job injuries only, by covering all injuries and health issues that affect an employee’s ability to work. 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 0.26% in New Jersey to 1.30% in Rhode Island.
Paid Leave
Some states have begun to mandate employer-provided sick leave or paid sick time off, which means it operates like a tax. New York, for example, deducts 0.27% of the employee’s wages each pay period to cover paid leave for employees in that state. If your business operates in the following states, they have existing paid sick leave laws to follow.
Looking to know more about paid leave laws and policies specific to your state? Check out our state payroll directory and paid sick leave by state directory.
How To Pay Federal & State Payroll Taxes
It’s best to set aside money for employment taxes each pay period, even if you’re only required to send payment monthly. You definitely need to withhold money from your employees’ paychecks each period.
You will either need to deposit payroll taxes on a monthly or semiweekly basis. If you owed $50,000 or less in taxes for the prior year, you can pay monthly; anything more than that puts you on a semiweekly pay schedule. If you’re a new employer, you’re automatically placed on a monthly deposit schedule. For employers with very little payroll tax obligation (less than $2,500 a quarter), deposits can be made quarterly with the 941 tax return.
Federal Employment Tax Due Dates
If you determine your business needs to be on a monthly deposit schedule, you’ll need to deposit your employment payroll taxes (FICA and federal income taxes) by the 15th of the following month for which they’re due. Semiweekly schedules require that taxes for wages paid Wednesday, Thursday, or Friday be made by the following Wednesday. For wages paid on other days of the week, tax payments should be made by the following Friday.
Semiweekly Deposit Schedule
When payday falls on a: | Deposit taxes by the following: |
|---|---|
Wednesday, Thursday, and/or Friday | Wednesday |
Saturday, Sunday, Monday, and/or Tuesday | Friday |
One important thing to note is that if you accumulate $100,000 or more in taxes, regardless of your deposit schedule, you must deposit the taxes by the next business day.
State Tax Due Dates
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 person based on factors such as their marital status and the 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, while North Dakota does and uses the Federal W-4 to track withholdings. New Jersey also has state tax withholdings and tracks them on a Form NJ-W4.
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: Oct. 31
- Quarter Four: Jan. 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, Oct. 25, and Jan. 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.
Filing Tax Forms
To file employment taxes with the IRS and other agencies, you’ll need to use specific payroll tax forms so it’s clear what and how much you are paying; the forms have formulas that will help you calculate how much you owe, and the typical filing requirement is quarterly or annually.
You’ll need the following payroll forms when you file your employment taxes:
- IRS Form 941 or Form 944 for federal income and FICA taxes
- Form 940 for federal unemployment taxes
- State income and/or disability tax forms, if applicable to your location
- Municipal or local tax forms, if applicable to your location
You must deposit the taxes by the respective due date to avoid interest and penalties and maintain compliance with payroll laws. If you pay independent contractors, you won’t need to pay or file taxes for them, but you will need to send in a 1099 form to the IRS (and the contractor) to show the total earnings you paid them throughout the year.
To see a bigger picture of how you should be processing payroll even beyond managing payroll taxes, check out our step-by-step guide on how to do payroll. If you have remote workers, then check our guide on how to do payroll for remote employees.
Penalties for Missing or Late on Employment Tax Payments
If employers fail to remit payroll tax payments or send them in late, it could have the following impact:
- Employers may face criminal and civil sanctions
- Employees may lose access to future Social Security or Medicare benefits
- Employees may lose access to future unemployment benefits
If you’re late making deposits for FICA or federal taxes, you’ll be charged penalties as follows:
Penalty | Reason Charged |
|---|---|
2% | 1 to 5 days |
5% | 6 to 15 days |
10% | 16 or more days but before 10 days from the date of the first IRS notice |
10% | Amounts that should have been deposited, but instead were paid directly to the IRS or paid with your tax return |
15% | Amounts still unpaid more than 10 days after the date of the first IRS notice or the day you receive notice and demand for immediate payment |
Bottom Line
Paying your payroll taxes correctly and on time is an important part to becoming a successful employer, but it can become challenging as you grow. Tax rates change from year to year, especially state payroll tax rates, and you must keep track of them to accurately calculate your business and your employees’ tax obligations.
Using a payroll provider like Gusto will help ensure you are always up-to-date on federal, state, and local payroll tax rates. The system calculates taxes according to federal and applicable state tax rates in its database. In addition, it files the taxes to the IRS and other tax agencies at no extra cost to you. Try it free today.
