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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. If you run a small business or work in payroll, these are topics you must understand.

Introduction

When entrepreneurs and small business owners imagine their companies growing, becoming more profitable, and needing the support of more employees, they often think about all of the exciting things that are going to happen with that growth. Building a company culture, increasing profits, and gaining more and more customers--are some of the most exciting parts of being an entrepreneur.

Payroll taxes are not one of the exciting parts.

In fact, for many small business owners, understanding payroll taxes and then implementing an effective payroll tax management system can be one of the most complicated parts of hiring their first employees.

 

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At Complete Payroll, we are experts in setting up and maintaining payroll tax systems. We want to help you figure out everything you need to know. So let’s break down the most important pieces of information you need to know about ensuring that you are compliant with all federal and state payroll tax laws.

Watch a Quick Explanation

In the video below, our Tax Manager, Ashley Hamilton, explains how payroll taxes are calculated.

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What are Payroll Taxes?

Payroll taxes look different from nation to nation, but a simple definition is that these taxes are imposed on either employees or employers (or both!). Typically, the amount paid by the employer or the employee is based on a percentage of the employee’s salary.

There are a number of different kinds of payroll taxes, including:

Withholding Taxes

According to Investopedia, “A withholding tax is an amount that an employer withholds from employees' wages and pays directly to the government. The amount withheld is a credit against the income taxes the employee must pay during the year.”

Pay-As-You-Earn (PAYE) Taxes

This is a subcategory of withholding taxes that is used primarily in the United Kingdom and in Australia, although the unique aspect of PAYE taxes is that they are treated as a sort of advance on the income tax bill that would be due at the end of the year. Typically, employers are the ones who calculate this amount, but with the government’s approval.

Employer-Paid Taxes (FICA)

Some taxes don’t come from the employee’s salary, but from the employer, based on the salary they provide. These amounts tend to cover programs like social security, Medicare, and other insurance programs. In the United States, FICA stands for Federal Insurance Contribution Act and funds Medicare and Social Security.


Additionally, your employee handbook is an ideal way to communicate with employees, whether it be about what is expected from them, what they can expect from their management and the company itself, or provide updates to company policies.

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Who Pays Payroll Taxes?

Although some taxes are paid by the employer and some by the employee, the burden ultimately falls to the employee. This is because employers often accommodate for certain taxes they are responsible for by lowering the wage or salary.

Not every state collects payroll taxes. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not collect payroll taxes from their employees’ income, while New Hampshire and Tennessee only collect income tax from investment-based income.

Watch a Quick Explanation

In the video below, our Tax Manager, Ashley Hamilton, explains everything employers need to know about the new ECE Tax in New York State.

 

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Calculating the Employee's Payroll Tax Withholdings

The employee is the one who gets to determine whether or not taxes will be withheld from their paycheck and how much. If they choose to, employees can receive their entire paycheck and then owe taxes at the end of the year. However, most employees choose to have funds withheld to avoid a large tax bill every year.

You are responsible for withholding the amount that your employees choose via their W-4. They will provide you with their marital status, the number of allowances they can take, and then any additional funds they want to have withheld. You use those numbers to determine the exact amount withheld from their salary.

Browse Employer Forms

Click here to browse a complete list of new hire state and federal withholding forms.

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Employee Onboarding Guide

Read our comprehensive guide to effectively onboarding new employees.

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Calculating the Employer's Payroll Tax Responsibility (FICA)

As the employer, your portion is determined by calculating a percentage of the employee’s salary. Social Security and Medicare contributions must be kept separate. Your contribution to Social Security is 6.2% of the employee’s gross pay, whereas your Medicare contribution is 1.45% of said gross pay.

Watch a Quick Explanation

In the video below, our Tax Manager, Ashley Hamilton, explains the difference between federal withholding and FICA withholding.

 

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There is a maximum social security withholding set each year, and you will need to ensure that the total being withheld does not exceed that maximum.

There is also an Additional Medicare tax for some employees. This 0.9% tax is applied to employees who surpass the following income thresholds:

  • Married filing jointly - $250,000
  • Married filing separately - $125,000
  • Single - $200,000
  • Head of household (with qualifying person) - $200,000
  • Qualifying widow(er) with dependent child - $200,000

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Tools Available to Employers for Understanding Payroll Tax

There are a lot of ins and outs to payroll tax. Entrepreneurs and small business owners often need support in making sure they are fully compliant with payroll tax policies. Because certain thresholds and percentages change from year to year, understanding payroll taxes requires continued knowledge building and information gathering.

A number of tools exist to help employers.

  • The IRS provides an Employer Tax Guide every year in the form of a downloadable PDF.

  • Several payroll tax calculators can be found online. Our advice is to simply be sure that you are using one with fully up-to-date information so that you don’t up with any miscalculations.

  • Call in the professionals! Many employers end up realizing that payroll tax management is not the best use of their time. Small businesses, in particular, already need the people in charge to be invested in making the company work, not getting bogged down in the details. Let’s talk about when this might be a good strategy in the next section!

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What Other Taxes are Employers Responsible For?

In addition to FICA and income tax withholdings, all employers are also responsible for paying unemployment taxes. There are federal unemployment taxes (FUTA) and state unemployment taxes (SUTA), and these are calculated using a specific formula provided by federal and state government agencies.

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Get Professional Support for Payroll Tax Management

Generally, employers don’t outsource payroll tax management while still managing the rest of the tasks associated with paying employees. Rather, they outsource their entire payroll system, and taxes are one of the things within the purview of the hired agency or company.

Outsourcing your payroll can be a great way for you to be able to focus on the work of running your company, rather than the logistics of managing payroll and employment taxes. As a professional payroll company, we at Complete Payroll think of it like this: by letting us manage this part of your business, you get to commit more time and energy to the things that will make your company great!

 

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There are generally three main reasons why people choose to hire a payroll company like ours.  

  1. They don’t have time to manage their own payroll and need to outsource these tasks so that they can focus on their job.

  2. They don’t have a dedicated HR department because they are a new, small company, and therefore they don’t have a person or team who can be responsible for the tasks associated with human resources.

  3. They don’t have a strong grasp of payroll taxes and want to make sure they are fully compliant. Entrepreneurs and small business owners are often experts in their industry, but not necessarily in tax and employment law.

As for why they hire us, specifically, it is because, at Complete Payroll, we help thousands of companies around the country. We are professional, innovative, and committed to providing our clients with personal and exceptional support every step of the way.

We are happy to work with small businesses and entrepreneurs no matter what reason they end up realizing they need additional payroll help! Contact us today to learn more about how we can simplify your business’s day-to-day operations as it relates to payroll, human resources, time tracking, and other compliance concerns.

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Arden Neubauer

Hunt Hollow Ski Club

Hunt Hollow Ski Club has tried other payroll companies from time to time, but always return to Complete Payroll because we have an assigned specialist who knows our needs inside and out, is knowledgeable, easy to reach and very responsive. My questions and concerns are addressed in a VERY timely manner and I never feel that I have to handle sticky issues alone.

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Bahar Uttam

Soderberg Insurance Services Inc

I have been working with Lacy Smart and her team for the last few years. I have been impressed by her responsiveness, accuracy, and high level of providing client satisfaction. She and her team are a wonderful testament to the organization!

Bobby Luu

Kenrick Maintenance Corporation

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Bonnie Deneef

Nuttall Golf Cars Inc

I have worked with a few different payroll providers during my career. Complete Payroll is absolutely, by far, the most proficient and customer service-oriented provider I have been privileged to work with. Lindsay Ezard goes above and beyond to assist me with any question I may have. Thank You Lindsay!

Carol Grover

Keuka College

The team at Complete Payroll is always responsive, always helpful, and always professional. They have gone above and beyond over recent years to assist Keuka College in creating efficiencies, maintaining compliance, and improving processes. Complete Payroll is a trusted partner, a valued resource, and a respected adviser.

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Rochester Hearing and Speech

My experience with Complete Payroll has been exceptional. I was a novice to payroll so my learning curve was big. Andrea is wonderful helping me navigate payroll and not just fixing my errors but explaining what I did or did not do.

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Finger Lakes Wrestling Club Inc

We were referred to Complete Payroll years ago by a board member and haven't looked back since. When I first started working with them, I knew nothing about payroll. My first rep Lacey, and now JoAnn, are great to work with. Working with Complete Payroll has just been a wonderful all-around experience for me.

Cathy Schuth

Hilton Health Care PC

We very much appreciate the quick service. If I need a special report it arrives via email within one business day, if not that day.

Christina Wagar

Dr. Christopher Mozrall

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Shear Ego Salon & Spa

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Boulevard Van City

We moved to Complete Payroll about 3 years ago. It was seamless and working with Lacy Smart on Mondays is a breeze.

Diane Romano

ROMOLD Inc.

People do business with people, not with corporations. In over 20 years, we have only had two customer service reps. Instead of feeling like we are one of 10,000, CP makes us feel like family! We count on Lindsay getting it right, and she always does. Even when we go outside the box, all is as we expect it!

Dick Eakins

Norco Farms

Complete Payroll fits my budget, I never get bounced around between customer service reps, and it's very easy to enter my payroll. I simply take a photo of my payroll sheet and email it to my rep. There's never a problem! With them, it's business done, and business done right.

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Town of Bergen NY

Complete Payroll Processing provided an easy transition from internal payroll processing. With payroll as their core competency, CP has the expertise to help mitigate errors and ease the burden of annual updates. Comprehensive reporting gives all the details needed and an organization can operate with an added piece of mind knowing that the payroll service is taken care of.

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Catholic Charities

After nearly 10 years, we are receiving the same or better service than when we started. The ability to reach our dedicated customer service representative in a timely manner is huge when there are deadlines in play. Requests for unique reports and integration with our other vendors has been handled without hesitation. We truly feel a partnership with Complete Payroll.

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Elite Roasters

I am very happy with your service and your website is easy to use. Employees are so responsive and ready to help with any questions. Andrea responds quickly to email, Tracy did everything from the beginning to get us started understanding and entering payroll, and Sydney's training was just super helpful.

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Wyse Properties

I just love Lindsay! She does an awesome job! She is very responsive and I like that she teaches me how to find things rather than just doing it for me.

Geri Vitullo

English Road Pediatrics & Adolescent Medicine, LLC

When our business began in 2005 I knew right away which payroll company we would use. I have had exactly 2 payroll specialists since then, and I feel like they know me & our company. I am not shy to ask questions & if they don't know the answer I am always pointed in the right direction. I have every confidence in my payroll specialist, Lindsay and the company she is with!

Gwen Jones

Mack's Body Shop, Inc.

I have had the great pleasure of working with Payroll Country for almost two years now. Tiffany was my original CSR and was very helpful, courteous, and was always there whenever I needed help. So far, my experience with my new rep, John, has been wonderful as well. I look forward to working with Complete Payroll for many years to come!

Howard Clarke

H Clarke Services

We have been with Complete Payroll for quite awhile now and plan on staying. Thanks!

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Jeff Allen

Crossroads House

Crossroads House has been using Complete Payroll for several years now. Their service is fast, friendly and accurate. Whenever we have payroll documentation needs arise for our employees, Complete Payroll always gets the job done quickly and efficiently. We are proud to count them as one of our many community partners.

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Swagelok Western New York

We have received excellent and attentive service for over 10 years now. We have come to rely on Complete Payroll's consistency and very low turnover. We appreciate the chance to know our rep and they get to know us and our needs as a business. If we have payroll or general HR questions, Complete Payroll has the answers for us.

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Inn at Houghton Creek

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Town Of Pembroke

We have been well served by Complete Payroll. When we have needed support, it was given both in payroll and other employee matters, like handbooks.

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Antonucci Law Firm

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The Service Collaborative of WNY, Inc.

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Tiffany Transportation Services LTD.

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Olean Wholesale Grocery Coop., Inc.

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Financial Service Company

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Fillmore Wesleyan Church

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Elite Armed Response Service, LLC

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A Gust of Sun Winery

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Central American Healthcare Initiative Inc.

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Brian Horn's Auto Repair, Inc.

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Evergreen Trails Campground

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Sorge's Restaurant

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Dudley Poultry

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Chemung County SPCA

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Independent Title Agency, LLC

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Elvira Aletta

Explore What's Next

Everyone I talk to at CP is friendly and tries to help. If they don't have a ready answer, that's OK. They take the time to find one. Website is user friendly, too. The actual operation of payroll is dependable and reliable.

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Peregrine Walton LLC

On the ball with pertinent payroll and HR topics - love the payroll system and customer service!

Peter Varlan

Mitchell T. Yencer

Things go quite smoothly and I have a very good rep: Megan!

Norlene Boone

GP Rochester, Inc.

Kari Sutton and her team always are there ready to help me with any questions or concerns. The reports are easy to read and complete with the data I need for the job! Thank you, Kari!

Cindy Van Buren

Heritage Packaging

Great customer support and service!

Bob Bolt

KTS Management, Inc

Easy to use! My rep, Ashlee Adams gives great customer service, and I love the options you have while still being affordable.

Joanne Hooven

Occupational Management Group

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Gregory Geraci

Jack of All Trades

Leanne was very helpful!

Rachelle Lyons

JD Burkhardt, Inc.

LeeAnne was very helpful in explaining the program with me and answered all my questions. I look forward to trying it out on my own next week!

Lisa Lyons

Attica Auto Supply Inc

Friendly, answered all my questions, and never felt hurried.

Bonnie DeNeef

Nuttall Warehousing LLC

LeeAnn was just wonderful to work with.

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