Key takeaways:

• Taxes you need to pay or withhold as an employer: FICA, FUTA and SUTA.
• Every employee you hire needs to have a Form W-4 and Form I-9 on file, as well as direct deposit authorization if you offer that option.
• Each state has a different SUTA tax rate and wage base, but the federal rate and base apply across the board.
• Set up a better payroll system with a partner like StaffLink.

No matter the size of your business, you’re on the hook for payroll taxes if you have at least one employee. You need to have a payroll system in place for withholding funds for taxes, alongside distributing or depositing your workers’ paychecks each pay period.

It isn’t always easy to understand payroll taxes, when to pay and how to figure out what to withhold from your employees’ paychecks. Here is your guide to employer payroll responsibilities and how the tax rates and limits work for federal and state unemployment tax.

Any company with employees is responsible for paying payroll taxes. These are distinct from income taxes, which are only paid by your employees on the wages they receive.

Some payroll taxes are paid by the employer with their own revenue, and some are paid from withdrawals from employee wages. Here are the types of payroll taxes to know:

• FICA (The Federal Insurance Contributions Act): These are tax costs you share with your employees. Your responsibility equals 1.45% for Medicare and 6.2% for Social Security.
• FUTA (The Federal Unemployment Tax Act): Employers are responsible for paying FUTA. The rate is 6% on the initial $7,000 of employee wages in a year, but most state credits cover 5.4% of that tax, so it likely won’t be that high for you.
• SUTA (State Unemployment Tax): This tax will vary based on the state you’re in, but it funds state unemployment (more on this in the next section).

You have a few additional responsibilities aside from paying the taxes themselves. Whenever you hire someone new, they must fill out IRS Form W-4, Employee’s Withholding Certificate, which is a basic form that gathers information like name, address and Social Security number. This form tells you what to withhold from employee wages.

Make sure you have this form on file for every employee, along with Form I-9, Employment Eligibility Verification, and a direct deposit authorization if you’ll be offering that option. Make sure to keep employment documents on file for at least four years after you pay taxes for that year.

State unemployment taxes can be a bit tricky to understand. As an employer, you only have to pay these types of taxes up to a certain wage limit.

As mentioned above, the FUTA tax only applies to the initial $7,000 of employee wages annually and the rate is 6%. These terms apply across the board. But each state has a different wage limit requirement for SUTA.

All employers pay SUTA, and the funds are used for each given state’s unemployment distributions when someone becomes unemployed and they’re actively seeking work but aren’t able to find it.

The wage bases and tax rates for each state vary widely. The states’ limits cannot be less than the federal base, so the lowest for 2022 is $7,000, which employers in Arizona, California, Florida, and Tennessee pay. The highest is Washington, at $62,500, followed by Hawaii at $51,600, Oregon at $47,700, Idaho at $46,500 and Alaska at $45,200. Ernst & Young has compiled a complete list of all fifty states and their wage limits.

In addition, each state has a set range for the SUTA tax rate. For instance, Iowa’s rate ranges from 0% to 7.5% and Florida’s ranges from 0.1% to 5.4%. Make sure to check out your state’s range requirements.

Your rate will fall within your state’s set range but the precise percentage will be determined by your experience rating and number of former employees who have filed for unemployment. You will typically have to pay a higher tax rate if you’ve had a lot of employees who have filed in the past, so it’s important to focus on ways to reduce turnover.

Once you have a grasp on the payroll taxes you’re responsible for and how to calculate them, submit them and follow all applicable guidelines. Sign up for the Electronic Federal Tax Payment System (EFTPS) to pay online. You will need to learn what your individual state’s requirements are for paying state payroll taxes but many now offer simple online systems.

Navigating all of these requirements can be tricky. You need a payroll system that will be seamless and integrate with your other workflows. You always need to make sure you’re following requirements on a federal level and for your state.

The team at StaffLink can help you set up a better process to ensure accuracy and efficiency. We bundle HR services to give you comprehensive solutions. Request a proposal or contact us at (954) 423-8262 for more information.