What Are the 5 Payroll Taxes?

Payroll taxes are deducted from employee’s wages obligatorily in order to fund government programs. For establishments managing payroll obligations and employees reviewing the paychecks, these taxes have vital impacts. The 5 payroll taxes can be outlined as federal income tax, Maryland state income tax, FICA taxes in Maryland, federal unemployment tax (FUTA) and Maryland unemployment tax (SUTA) as below:

1. Federal Income Tax

This tax is withheld from employees' wages in accordance with the amount of the income generated as well as the filing status, determined by the IRS tax brackets and personal allowances. The correct amount should be deducted by using the employee’s W-4 form and submitted to the IRS.

2. Maryland State Income Tax

An income tax is imposed on wages by Maryland State. A progressive tax system is obtained in MD with rates ranging from 2% to 5.75%. In addition, counties within Maryland apply local income taxes which are withheld alongside state taxes.

3. FICA Taxes in Maryland (Social Security and Medicare)

The Federal Insurance Contributions Act (FICA) funds Social Security and Medicare. Such deduction amounts are shared between businesses and employees:

• Social Security Tax: 6.2% of wages (matched by employers).
• Medicare Tax: 1.45% of wages (matched by employers). Employees with over $200,000 per year are subject to an additional 0.9% Medicare surtax.

4. Federal Unemployment Tax (FUTA)

The Federal Unemployment Tax Act (FUTA) funds unemployment benefits. Such tax is paid solely by employers, unlike other payroll taxes. A standard rate of 6% is applied on the first $7,000 of each employee’s annual wages  Businesses might qualify for a tax credit that reduces the effective rate to 0.6% in the case they pay state unemployment taxes (SUTA) on time.

5. Maryland Unemployment Tax (SUTA)

Many states in the U.S. require employers to contribute to an unemployment insurance fund via State Unemployment Tax (SUTA). In Maryland, the rates change from 0.3% to 7.5% in line with the employer’s experience rating (history of layoffs). 

Payroll Taxes are Important

Payroll taxes have a vital role in funding government programs, presenting financial security to retirees, covering healthcare needs and supporting unemployed workers. Payroll tax payments should be on time with maximum accuracy to prevent surprise penalties. A paycheck calculator MD can be useful for quick calculations.

If you need professional assistance with payroll tax calculations, experts at Watter CPA are ready to present full support.