Currently the employer portion is 6.2% of taxable wages for the first USD 110,110 that each employee earns in the year. In addition to the withholding taxes, there are also a few taxes that the employer must pay:Īs mentioned above, the employer pays part of the social security tax. Because each of these taxes is unique, it is very important to check with us or your payroll service when you hire an employee in a new state to avoid future penalties and interest. Three states (Pennsylvania, New Jersey and Alaska) require employees to pay part of the unemployment tax. For example, California employees must pay 1% of their taxable wages to the state-run Disability Insurance program. In addition to state and local withholding taxes, some states have additional special withholding requirements. In Colorado, only a few cities have a local tax – this tax is called an Occupational Privilege Tax and is assessed on anyone who works in that city, but not on people who live in the city and work outside the city. For example, in Pennsylvania the local tax is a municipality tax that is used to fund local school districts and emergency services.

Some states, such as Pennsylvania, Ohio, Kentucky and Colorado, also have local taxes. Your payroll service can also be of great help in this area. We can help you determine your state’s requirements. Some states even have their own withholding form similar to a Form W-4 that employees must complete in order to calculate the State Withholding Tax. Each state has its own unique tax return, tax table, and method of payment. Most states also have a State Withholding Tax which is similar to the Federal Withholding Tax. If you are using a payroll service, you simply need to give them the information that is on the completed Form W-4 and the payroll service will access the tax tables provided by the IRS to calculate the appropriate amount. Current employees may complete a new Form W-4 at any time if necessary. Therefore every new employee must complete a Form W-4, Employee’s Withholding Allowance, and turn it in to their employer. The employer must be able to calculate the appropriate amount of Federal Withholding Tax to withhold from each employee’s check every payday. Anyone who earns wages that are taxable by the federal government must file a tax return each year. Currently the employee must pay 1.45% of all their taxable wages while the employer also pays 1.45% of the taxable wages.įederal Withholding Tax is also administered by the IRS. Medicare is also paid partially by the employee and partially by the employer. This tax cut has been renewed by the government through December 31, 2012. However, in 2011, the federal government instituted a temporary tax cut for employees where the employee would only be required to pay 4.2% of their wages up to the wage base while the employer continued to pay 6.2%. Half of this was paid by the employee and half by the employer. The taxes are paid partially by the employees as a withholding tax and partially by the employer as a payroll tax expense.įor many years, Social Security tax was 12.4% of the employee’s wages up to a particular wage base for the current year (for 2012 the wage base is USD 110,110). These taxes are used to provide for a number of federally administered programs to help disabled, unemployed and retired citizens.

Social security and Medicare taxes are administered and paid to the federal Department of the Treasury, Internal Revenue Service (IRS). – Other miscellaneous taxes in some states or cities

We will also introduce some of the more unusual taxes that appear at times from state to state or even city to city.Įach employee must have the following types of payroll taxes withheld from their paycheck: In this article, you will learn about the main taxes that all employers must either withhold from their employees’ paychecks or which employers must themselves pay as a payroll expense. Payroll taxes are administered by a variety of agencies in the United States, depending on where your employees work and live. Payroll Tax Withholding and Expenses in the United States

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