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Payroll taxes are the payments you as an employer make when you run payroll for employees. They include taxes that come out of an employee’s pay plus costs you cover for federal, state and local programs. The payroll tax rate colloquially refers to the rate you pay for Social Security and Medicare taxes, but payroll taxes can include more than these two costs. Featured Partners $40 per month + $6 per user Fee-free W-2 and 1099 processing Four day maximum turnaround time $39-plus per month, depending on company size and needs Federal Payroll Tax RatesIn most cases, the federal payroll tax rate is about 15.3%, with the employee covering 7.65% and the employer covering 7.65%. If you’re self-employed—as a sole proprietor or business owner—you’re responsible for the full 15.3%, usually referred to as self-employment tax. Potential additional taxes and credits based on your circumstances could change what your business is responsible for paying. Employers and employees pay federal employment taxes that include payments toward Social Security, Medicare and unemployment insurance. Social Security and Medicare taxes are collectively known (and may appear on paycheck stubs) as FICA taxes, for the Federal Insurance Contributions Act included in the 1930s New Deal legislation that introduced Social Security. Unemployment tax is known as FUTA tax for the Federal Unemployment Tax Act of 1939 that introduced that benefit. The rates have gone up over time, though the rate has been largely unchanged since 1992. Federal payroll tax rates for 2022 are:
When your business files a tax return each year, you’ll include a form showing you paid state unemployment taxes, and that can qualify you for a tax credit in most cases. The credit can bring the FUTA tax rate down as low as 0.6%. Learn more about the FUTA tax from the IRS, and work with a qualified tax preparer to submit the correct forms. State Payroll TaxesIn addition to the federal taxes, you may be responsible for state payroll taxes. The most common state payroll tax pays for state unemployment insurance (SUTA tax), of which you cover 100% as the employer. You pay unemployment insurance based on what tax agencies call a wage base, which is a cap on the wages subject to a particular tax. The wage base and tax rates vary by state. Check with your state’s department of workforce development or other office that manages unemployment insurance to find your rates. You might make state unemployment tax payments along with payroll or as a separate payment each month or quarter, depending on the processes available in your state. Some states collect additional payroll taxes for things such as workforce development, disability insurance and transit. Consult an accountant in your state to learn which taxes your business is responsible for paying or deducting from payroll. Local TaxesYou may be subject to further payroll taxes based on the Zip code, county or municipality where your business is based. These taxes can pay for various local projects, such as transportation, that support business and production. They could be taxes you’re responsible for as an employer, taxes the employee is responsible for or both. Check with your local tax agencies and consult a local accountant to understand your local tax responsibilities. Maximum Taxable Income 2022The Social Security Administration sets an annual maximum limit on the amount of any employee’s wages that’s subject to the Social Security tax. This is called the contribution and benefit base, and it changes annually. For 2022, the maximum wage amount subject to Social Security tax is $147,000. There’s no maximum taxable limit for Medicare tax, so you and the employee would continue to split the 2.9% tax on earnings over $147,000, even though those earnings wouldn’t be subject to the Social Security tax. The wage base subject to federal and state unemployment tax also changes annually. The amount of wages subject to FUTA and SUTA taxes is capped based on the wage base for each. Income TaxesGenerally, when people refer to “payroll taxes,” they’re talking about FICA and FUTA taxes and additional state or local taxes. The other major tax you file when you run payroll as an employer is employee income tax. You’re not responsible for paying any portion of an employee’s federal, state or local income tax, but you’re responsible for deducting it from their paycheck, and reporting and sending it to the IRS and other tax agencies. You file employee income taxes based on the W-4 they filled out when you hired them. This form tells you exactly how much to withhold from each paycheck—you’re not responsible for whether the amount withheld covers the employee’s full tax liability or not. Other Payroll Costs and DeductionsAlong with your tax responsibilities, you may pay other costs at payroll, based on legal requirements or optional benefits your company offers. These might include:
Penalties for Missed or Late PaymentsThe IRS charges a late fee if you don’t deposit the employment tax you owe on time, called a Failure to Deposit Penalty. You’ll receive a notice from the IRS if you owe a penalty.
Featured Partners $40 per month + $6 per user Fee-free W-2 and 1099 processing Four day maximum turnaround time $39-plus per month, depending on company size and needs Bottom LinePayroll taxes include the employment taxes you and your employees pay for federal and state programs, including Social Security, Medicare, unemployment insurance and disability benefits. They also include income tax deducted from your employees’ pay and other payroll tax deductions, such as those for health care benefits and paid leave. The federal employment tax rate is 15.3%, with the employer paying 7.65%. That, plus the cost of workers’ comp, benefits and state and local requirements, make up the cost of having your employee in addition to the salary or wages you pay them. Frequently Asked Questions (FAQs)How do you pay payroll taxes?Calculating payroll taxes can be complicated, but many payroll services can handle the calculations, payments and filing for you automatically. Review our list of the best payroll services to find a platform that fits your business. What is the employer FICA rate for 2022?The employer FICA rate is 7.65% in 2022. Employees pay an additional 7.65% FICA tax, and self-employed workers pay the full 15.3%. Did 2022 payroll taxes go up?No, the payroll tax rate has remained unchanged since 1990, but the maximum amount of income it can be applied to changes each year. The FICA tax rate is 15.3%. The wage base for various state and federal taxes may change from year to year. |