What State Payroll Taxes Does an Employer Pay?
An employer has financial responsibilities when it comes to state payroll taxes, just as it does with federal payroll taxes. State payroll taxes vary from state to state, but a few general guidelines apply to most states. Payroll taxes are only due on funds that have already been paid to an employee and not on those that will be paid in the future. Payroll taxes must be paid on all forms of payment that have been received by an employee and include but are not limited to: wages, commissions, tips and bonuses. State payroll taxes that are paid after the due date are subject to additional fees and interest, so it's always best to pay these taxes on time.
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Types
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Most states have a graduated income tax that's due every month for every employee. Payroll tax is calculated according to the level of income and the number of withholdings for which an employee is eligible. The state payroll tax is deducted from the employee's wages. Additionally, most states require employers to pay unemployment compensation on a quarterly basis for all employees. In most states, unemployment compensation is a flat percentage of an employee's pay and has a maximum amount that must be paid during a calendar year. The employer is responsible for paying the unemployment contributions to the state. Even though worker's compensation is not technically considered a payroll tax, in many states, worker's compensation is paid directly to the state on behalf of an employer. Worker's compensation is calculated according to each employee's job responsibilities and the risk factors associated with his line of work. The employer is responsible for paying worker's compensation for all eligible employees; this amount isn't deducted from the employee's paycheck.
Significance
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State payroll taxes help cover costs within the state that aren't funded by federal tax. According to the Center on Budget and Policy Priorities, these taxes are used to cover the costs associated with elementary and secondary education, public colleges, health services and medical treatment for uninsured and low-income families, public transportation, state police, parks, low-income housing, prisons and correctional facilities, government pensions, general economic and financial developments, environmental projects and financial aid to local governments. State taxes provide the necessary funding for the public safety, educational needs and economic growth within the state.
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Benefits
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Since employers are responsible for paying the payroll tax on behalf of an employee, it eliminates the need for each employee to calculate exactly what's owed. Certain states have complicated procedures for determining how much tax is owed during the course of the year. Even though the funds are deducted from each of the employee's paychecks, the employee doesn't have to try to come up with all of the state taxes at the end of the year --- these payments have been spread out over time. Unemployment tax and worker's compensation amounts are paid directly by the employer, and no income is deducted from the employee's paycheck.
Misconceptions
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There are no state payroll taxes for Social Security or Medicare. Social Security and Medicare are federal tax entities and don't require payments at the state level. Employers and employees don't have state responsibilities concerning Social Security or Medicare, so there's no state payroll tax that's required for Social Security or Medicare. Any Social Security or Medicare deductions from an employee's paycheck are always sent to the federal government.
Considerations
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All state payroll taxes must be paid on time, or the employer is fined for past-due taxes. Late payments can result in additional assessed fees and accrued interest. State payroll taxes are due on a monthly basis and are generally paid the following month for the previous month's payroll. For example, state payroll tax on wages and other compensation that are earned during June is due by the end of July. In some states, state payroll tax is due in the middle of the following month rather than at the end of the following month. Unemployment payments and worker's compensation payments are generally due on a quarterly basis that coincides with federal due dates. These dates include but are not limited to: January 31, April 30, July 31 and October 31.
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