State Payroll Taxes: What to Know for 2024/25

Masha -

Wondering whether you are paying the right taxes for your employees can cause a lot of stress and anxiety. You have to do it right or you risk the wrath of everyone involved, from your employees to the tax office! Additionally, local legislation regarding taxation can vary greatly from state to state.

Things get even more complicated when you're a small business owner juggling tasks like payroll and employee scheduling without a dedicated accounting team. If only there was an easier way!

This article will tell you everything you need to know about the 2024/25 state payroll tax. We'll help you navigate the complexities of payroll tax, and we'll show you how a tool like IceHrm can make your juggling easier.

What is the state payroll tax?

State payroll taxes include income tax, unemployment tax, and in some states and cities, local taxes. Income tax is paid by employees, unemployment tax by entrepreneurs.

Some states have no income tax, but all states have an unemployment tax, and a few states and cities also have local payroll taxes. For more information, we've already covered everything you need to know about state payroll taxes.

Below is a brief summary of the elements that make up state payroll taxes.

State income tax

State income tax rates are not uniform across the United States. Nine states - Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming - do not impose taxes on regular income. Employees in these states do not have state income tax deducted from their pay.

Another nine states - Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, North Carolina, Pennsylvania and Utah - impose a flat tax rate. The application of this rate varies from state to state, so you should check your state's tax rules for details.

In the other states and in Washington D.C. Progressive tax rates apply, which depend on income level. The tax brackets range from three to twelve. Check with your state for current tax rates and tax brackets.

State unemployment tax

All states impose an unemployment tax to fund benefits for qualified unemployed workers under the Federal Unemployment Tax Act (FUTA) and the State Unemployment Tax Act (SUTA). Corporate tax rates are determined by various factors, including length of service and the entitlements of former employees. These rates are subject to annual changes.

Local taxes

Depending on your state or city, local payroll taxes may apply. Examples include Oregon's statewide transit tax and local taxes such as California's Employment Training Tax (ETT) and State Disability Insurance (SDI), the former being paid by employers and the latter by employees. To avoid unexpected liabilities, you should check with the relevant authorities about applicable local taxes before making payroll.

Payroll Tax by State: A Closer Look

Below you will find the most important information about the differences in payroll taxes in the individual federal states. Please note that this information is current as of January 31, 2024. Refer to official state and local sources for the most current information.

States with no income tax

In states without an income tax, the employer's payroll responsibilities are limited to federal obligations and any state-specific taxes such as unemployment insurance. Employers in these states need to pay attention to the following:

  • Federal Payroll Tax: All employers must comply with federal tax obligations, including withholding Social Security and Medicare taxes under FICA.
  • State Unemployment Insurance Tax: Employers must contribute to their state's unemployment insurance, although rates and regulations vary by state.

This applies in:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas (known as Texas Unemployment Tax)
  • Washington (including workers' compensation)
  • Wyoming

States with flat income tax rates

Employers in states with flat income tax rates should withhold state income tax at the uniform rate provided by the state. They must also pay unemployment insurance and federal payroll taxes:

  • Colorado
  • Illinois
  • Indiana (employers also have to worry about county tax rates)
  • Massachusetts
  • Michigan
  • North Carolina
  • Pennsylvania (local tax rates may also play a role)
  • Utah
  • Kentucky

States with progressive income taxes

In states with progressive income tax systems, employers must regularly update withholding tables to reflect different tax brackets and rates. Employers are also responsible for state unemployment taxes and federal payroll taxes. The list below includes states with progressive income tax systems. However, employers should be sure to familiarize themselves with any state-specific regulations that may impact payroll:

  • Alabama
  • Arizona
  • Arkansas
  • California
  • Connecticut
  • Delaware
  • Georgia
  • Hawaii
  • Idaho
  • Iowa
  • Kansas
  • Louisiana
  • Maine
  • Maryland
  • Minnesota
  • Mississippi
  • Missouri
  • Montana
  • Nebraska
  • New Jersey
  • New Mexico
  • New York
  • North Dakota
  • Ohio
  • Oklahoma
  • Oregon
  • Rhode Island
  • South Carolina
  • Vermont
  • Virginia
  • Washington D.C.
  • West Virginia
  • Wisconsin

Other states

Some states have specific tax regulations that employers must be aware of:

  • New Hampshire: No state income tax is withheld, but taxes apply on dividends and interest income.
  • Tennessee: Similar to New Hampshire, with the addition of the state tax on dividend and interest income. Employers should also be concerned about federal payroll and unemployment taxes.

Reporting and filing requirements

As a business owner, you must adhere to various reporting and reporting requirements to ensure payroll tax compliance:

  • Federal Compliance: File W-2 forms each year reporting wages and taxes withheld for each employee. Use Form W-3 to consolidate these W-2 forms for filing with the Social Security Administration. File Form 941 quarterly or Form 944 annually to report wages paid and income, Social Security, and Medicare taxes collected.
  • State-Specific Reports: Depending on your state, you may be required to file additional quarterly reports. For example, California businesses must file Forms DE 9 and DE 9C for unemployment insurance and state disability insurance contributions.
  • Unemployment Insurance: Most states require quarterly reporting for wages and payment of state unemployment insurance taxes. The names of the forms and the specific requirements vary from state to state.
  • Reporting of New Hires: States also require reporting of new hires to track child support obligations.
  • Local Taxes: Some communities require separate reporting for taxes such as income, school district or other local taxes.
  • Deadlines and Forms: Each state and locality may have different deadlines and forms. Be sure to check your state's Department of Finance and Labor website or consult a tax professional for proper forms and filing deadlines.

State payroll tax made simpler

As previously mentioned, complying with federal, state and local laws for your business when it comes to payroll taxes can be very complex. IceHrm offers features that can simplify payroll tax compliance:

  1. Automated payroll: IceHrm converts timesheets into hours and wages, calculates taxes, and ensures accurate payments to employees and tax authorities.
  2. Tax Returns: IceHrm automatically processes tax returns, issues 1099s and W-2s, and submits reports for new employees so you can meet federal and state requirements.
  3. Error reduction: By syncing time tracking with payroll, IceHrm helps eliminate errors when calculating hours, breaks, overtime and PTO.
  4. Streamlined data management: Employees can self-enroll and sign their payroll forms electronically, centralizing tax and banking information.
  5. Compliance Assistance: IceHrm helps establish federal break and overtime regulations and stores timecard records for FLSA compliance.

Understanding payroll taxes by state is critical to your business's compliance and financial health. It's not just about understanding tax rates, but also how to properly withhold, report, and remit those taxes. A tool like IceHrm can simplify these complex processes so you can focus on growing your business.

Understanding state payroll taxes is crucial for business compliance. IceHrm simplifies complex processes, allowing you to focus on growth.