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.
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.
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.
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:
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.
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.
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.
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.
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
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!
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.
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!
There are generally three main reasons why people choose to hire a payroll company like ours.
They don’t have time to manage their own payroll and need to outsource these tasks so that they can focus on their job.
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.
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.
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.
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!
Kenrick Maintenance Corporation
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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!
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.
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.
Finger Lakes Wrestling Club Inc
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Hilton Health Care PC
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Dr. Christopher Mozrall
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Shear Ego Salon & Spa
The first suggestion I made after I joined Shear Ego was that if they were not yet using Complete Payroll, they should be. We continue to be impressed and happy with the quality and friendliness of service, and the excellent newsletters and up-to-date information on all things payroll and HR.
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.
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!
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.
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.
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.
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.
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.
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!
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!
H Clarke Services
We have been with Complete Payroll for quite awhile now and plan on staying. Thanks!
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.
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.
Inn at Houghton Creek
Great customer service combined with a reduction in processing fees made the decision to stay with Complete Payroll an easy one. Our customer service representative, Kendall, always gets back to us quickly, and she is always very helpful and friendly. Also, the training that we received from LeeAnn was thorough and beneficial.
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.
Antonucci Law Firm
It has been great working with everyone from Complete payroll. Everyone through the years have always been great. They take your phone calls every time, and always go above and beyond what you need. We have been customers for years and will continue for years.
The Service Collaborative of WNY, Inc.
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Tiffany Transportation Services LTD.
I have worked with many payroll companies throughout my career and Complete Payroll surpasses them all in personalized service. My CSR is Andrea and I have always received assistance in a timely manner. Keep up the great job!
Olean Wholesale Grocery Coop., Inc.
Complete Payroll is the best choice that I have made for our payroll and HR services. Anytime I have called customer service, there is always a happy and knowledgeable person on the line to help us out! They have done anything I have asked of them in a quick and efficient manner! I would recommend them to anybody!
Financial Service Company
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Fillmore Wesleyan Church
I've been very pleased with the service and responsiveness of my CSR, and CP's continued dedication to provide us with all the tools we need to have a successful payroll and HR experience. You are always available when I have a question and always make sure that any problems that arise are worked through to my satisfaction.
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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We have been customers for many years. Evolution Software is easy to use but, more importantly, Cindy is an email away and her knowledgeable, efficient, and quick to replies to our questions are appreciated. We're very happy with Complete Payroll.
Chemung County SPCA
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Independent Title Agency, LLC
My CSR, Andi Dimmick, is The Bomb! She's always friendly, cheery, and with all her clients, makes me feel like she has carved time out for ME. Her customer service is AWESOME, and the personal touch means so much!
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.
Peregrine Walton LLC
On the ball with pertinent payroll and HR topics - love the payroll system and customer service!
Mitchell T. Yencer
Things go quite smoothly and I have a very good rep: Megan!
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
Great customer support and service!
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.
Occupational Management Group
LeeAnn was very helpful, very thorough, patient, and professional, and pleasant! She is an excellent trainer!
Jack of All Trades
Leanne was very helpful!
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!
Attica Auto Supply Inc
Friendly, answered all my questions, and never felt hurried.
Nuttall Warehousing LLC
LeeAnn was just wonderful to work with.
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