What Are Payroll Taxes?

Thinking about hiring employees and want to learn more about payroll taxes? Payroll taxes are paid by both employers and employees. There are FICA taxes, Federal, State, and Local Income taxes, and Federal and State Unemployment taxes. Below is a quick rundown.

FICA

FICA stands for the Federal Contributions Act which includes a Social Security tax and a Medicare tax. FICA taxes are 15.24% on wages paid which are split between the employer and employee. Each party pays 7.65%. The employee’s portion is withheld from their gross pay and remitted on their behalf by the employer. The employer pays their share directly. Also, employees who make over $200,000 (single filers) pay an additional Medicare tax of 0.9% on any income over that amount.

Federal, State, and Local Income Taxes

Employees pay Federal, State, and Local taxes on wages earned and employers withhold those amounts from gross earnings and remit them to tax authorities on the employee’s behalf.

Note that some states don’t collect income tax on wages and local taxes may vary depending on the city or town.

Federal and State Unemployment Taxes

Employers are required to pay Federal and State unemployment taxes. FUTA stand for the Federal Unemployment Tax Act. Employers have to pay 6% on an employee’s first $7000. SUTA stands for State Unemployment Tax Act and each state uses a different base and tax rate for the tax. Also, states have a minimum and maximum tax rate that may affect you depending on how many former employees successfully claim unemployment.

Hopefully the above information is a great starting place. Of course it’s always best to consult a CPA to make sure you are in compliance if you choose to do your own payroll. If that sounds like a big hassle I recommend checking out Gusto, which is an online payroll service that is affordable and fabulous. They also can provide employee benefits like health insurance and 401(k) accounts.