12If it’s your first time running payroll, or it’s been a while since you’ve had an employee, it can feel daunting coming up to speed on all the payroll taxes out there. The good news is that there are only five federal and state payroll taxes you need to know to get started with the basics of payroll. Let’s dive in. 

Federal income tax

The basics:

  • Employee paid tax.
  • Owed by most employees in the U.S.

Need-to-knows

  • The amount of tax withheld varies based on each employee’s withholding allowances from Form W-4 and their earnings for the year.

State income tax

The basics

  • Employee paid tax.
  • Owed by most employees who work in states with state income tax.

Need-to-knows

  • Nine states do not tax earned income, they are: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
  • State income tax rates vary based on an employee’s withholding allowances and earnings for the year.

FICA payroll taxes

The basics

  • Employer and employee-paid tax.
  • FICA stands for Federal Insurance Contributions Act.
  • FICA is made up of Social Security and Medicare taxes.

Need-to-knows

  • Social Security tax is 6.2% for both employers and employees, with a wage base of $142,800 in 2021. The IRS can change this wage base every year.
  • Medicare tax is 1.45% for both employers and employees.
  • Employees who make over $200,00 are subject to an additional Medicare tax of 0.9% on all wages over $200,000.

FUTA payroll taxes

The basics

  • Employer-paid tax.
  • FUTA stands for Federal Unemployment Tax Act. Some people simply call this tax Federal Unemployment. 

Need-to-knows

  • The FUTA rate is 6% for all employers in the U.S., but if employers pay their state unemployment taxes on time, they are eligible for a 5.4% tax reduction. Most employers receive this reduction. 
  • If you live in a FUTA credit reduction state you may not be eligible for the full 5.4% reduction.

SUI

The basics

  • Employer-paid tax.
  • SUI stands for State Unemployment Insurance. This tax can also be called SUTA, which stands for State Unemployment Tax Act. Many people simply call this tax State Unemployment.

Need-to-knows

  • State governments determine state unemployment tax rates and can vary year to year. There are multiple factors that go into determining a businesses’ rate, which include how many employees have claimed unemployment benefits, if their taxes have been paid on time, and how long the business has been in operation.

Other payroll taxes to know

Once you have mastered these must-haves, it’s important to check if your business is subject to additional state or local payroll taxes. Some states, like California, have additional state disability taxes. Others, like Oregon and Pennsylvania, have local taxes based on zip codes. Federal, state, and local payroll taxes are all an essential part of running your payroll right.

If you are looking for help, check out Homebase Payroll. Homebase offers an online payroll service that syncs automatically with your time tracking and scheduling, so you never have to enter hours manually and payroll is a breeze.