In the United States, companies and employees are required to pay payroll taxes in order to support a number of federal and state programs, including unemployment insurance, Social Security, Medicare, and occasionally state-specific initiatives. Usually, these taxes are deducted from an employee’s salary and paid by the employer, either directly or through a third party.
Key Payroll Taxes in the U.S.
Federal Payroll Taxes:
- Social Security Tax:
- Employee rate: 6.2% of wages, up to the annual adjustment of the wage base limit, which in 2023 will be $160,200.
- Employer rate: 6.2% of wages.
Medicare Tax:
- Employee rate: 1.45% of all wages (no cap).
- Employer rate: 1.45% of wages.
- Extra Medicare Tax: Workers who make more than $200,000 on their own (or $250,000 for married couples filing jointly) must pay an extra 0.9% in taxes, which their employers do not match.
Federal Unemployment Tax Act (FUTA):
- 6.0% of the first $7,000 of each employee’s pay is the employer-only tax.
- The effective rate is lowered to 0.6% when employers obtain a credit of up to 5.4%.
State Payroll Taxes:
- States may levy their own levies for disability insurance, unemployment insurance (SUTA), and other state-specific programs. These are often covered by the employer and differ from state to state. Employees also make contributions in several states.
Examples include:
- State unemployment taxes (SUTA) vary by state in terms of both rate and wage base.
- States like California, New Jersey, and New York require people to have State Disability Insurance (SDI).
Local Payroll Taxes:
- Payroll taxes are levied by some localities and municipalities (such as counties or cities) on either employers or employees. Taxes in some Ohio municipalities or New York City are two examples.
List of U.S. States with Payroll Tax Information
A list of states and the kinds of payroll taxes they may impose is provided below:
1. States with Mandatory State Unemployment Taxes (SUTA):
- While SUTA systems exist in all 50 states and the District of Columbia, there are differences in rates and pay caps.
2. States where disability insurance (SDI) is required:
- California
- Hawaii
- New Jersey
- New York
- Rhode Island
- Puerto Rico (territory)
3. States that do not impose state income taxes, however they may still impose payroll-related taxes:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington
- Wyoming
4. Local Payroll Tax Regions:
- Payroll or occupational taxes are peculiar to some localities, such as San Francisco, California; Philadelphia, Pennsylvania; and some parts of Ohio and Kentucky.
Every state has its own set of rules, thus companies must abide by the laws in the states where they employ people. Please contact me for further details on a specific tax type or if you require state-specific information.