Welcome to the very first episode of a brand new video series that we're calling "Ashley Explains," where our resident tax guru, Ashley Hamilton, lays down the factsabout tax!
In this episode, Ashley Explains how payroll taxes are calculated in New York State. Enjoy!
NOTE: The information provided in this video is based on 2018 rules and regulations. We will work to update this episode annually as these rules change.
Read the Transcript:
From an employer's perspective, you're going to be looking at taxes from a federal, state, and local level. The federal level you're going to be paying OASDI, Medicare, and FUTA taxes. OASDI is calculated at a rate of 6.2 percent, and has a wage limit threshold of $128,400. So, as soon as that limit is hit, no more OASDI tax needs to be paid on that employee.
Medicare is at a rate of 1.45 percent, and has no wage limit. There is a wage limit on the employee side that actually causes them to be tax in additional .09 percent, but the employers aren't responsible to match that additional percentage.
FUTA, which is also known as Federal Unemployment Tax, is calculated at a rate of .06 percent and that's paid on the first $7,000 of wages of each employee. However, most employers will receive a tax credit of .054* percent if they meet certain requirements, which is they pay off their state taxes on time and don't pay anything late to the Federal Government. Once they receive that credit, that will bring the FUTA tax rate to .006 percent which equals out to be about $42.00 per employee.
At the state level, you're also looking at unemployment taxes. This gets a little bit more complicated because there isn't a fixed rate at the state level. So, how they determine your rate based on your company's unemployment history. So, if you're somebody that has high turnover, you're probably going to see a little bit higher of a rate, and also it depends on the state that you're in. So, if your state's economy is not doing so good or unemployment levels are higher, you'll probably see a little bit higher rate then as well.
Check out our comprehensive employer's guide to payroll taxes - a structured and simple overview of what employers need to know about the taxes that flow through payroll - on both the employer and employee side.
For New York State specifically, they have two unemployment taxes. They have your regular unemployment, which the rate is calculated like I said, based on employment history, and the economy of the state, and they have a re-employment tax. Basically, what most other states call a surcharge. So, that is at a fixed rate. That never changes at all, any year. That is .075 percent.
And lastly, local taxes. So, most states you're going to see local taxes at an employee level, but New York State does have a employer tax, but is only for companies that are located in the five bureaus of New York City. Basically what this is, is the MCT tax, which is a commuter tax. If you have a business location in the five bureaus, most likely your employees are going to be using public transportation, so they kind of hit you with a charge for that, and that's based on wage tiers. So, depending on how much wage your company pays out, you could qualify to not have to pay it or to pay it and then depending on what your wage limit is, your rate would go up accordingly, but starting at a rate of .011 percent.
*(CORRECTION: Ashley said 0.45 percent in the video by mistake. The correct rate is 0.54 percent. Updated.)
Got any tax questions you'd like Ashley to explain?
DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting, or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.
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