2024 Payroll tax rates: The complete guide (2024)

When employers pay their employees, they must remit payment for federal, state and, in some cases, local programs. Employees also pay a portion of the tax bill, but self-employed individuals must cover both parts. However, various deductions may apply, and some portions of payroll taxes have income limits.

What is the federal payroll tax rate in 2024?

Payroll tax rates include several parts, but at the federal level, employers must pay taxes under the Federal Insurance Contributions Act (FICA). FICA taxes have two main parts: Social Security tax and the hospital insurance tax, also known as Medicare tax.

The current tax rate for social security is 6.2% for the employer and 6.2% for the employee, for a total of 12.4%. For Medicare, the rate is 1.45% for the employer and 1.45% for the employee, for a total of 2.9%.

The Additional Medicare Tax also applies to the individual’s Medicare tax when employees earn wages in excess of a certain threshold. For Additional Medicare Tax, employers must withhold 0.9% on the individual’s wages above $200,000 in a calendar year. Employers must withhold this amount regardless of filing status. There is no employer match for this tax.

Finally, employers who paid $1,500 or more in annual wages and employed one or more employees for at least 20 weeks must pay a tax under the Federal Unemployment Tax Act (FUTA). This rate is 6.0% on the first $7,000 of employee wages (called the FUTA wage base).

Here is a summary of each of the parts discussed in this section:

• Social Security tax: This tax is 6.2% for the employee and 6.2% for the employer, totaling 12.4% of wages earned.
• Medicare tax: This tax is 1.45% for the employee and 1.45% for the employer, totaling 2.9% of earned wages.
• Additional Medicare Tax: The employee pays 0.9% of their earned wages above $200,000.
• FUTA: The employer pays 6.0% on the first $7,000 of an employee’s wages.

State and local payroll taxes

State and local payroll tax rates may vary significantly by state and locality. “Each state has its own tax rate; some are graduated (like federal income tax), some are flat tax and some don’t have a state tax at all,” said Erin O’Brien, a CFP and enrolled tax agent.

O’Brien adds that some states don’t have payroll tax. This can make it challenging for some employers with employees in multiple states or jurisdictions to know what to withhold. “In Pennsylvania, for example, the ‘PSD Code’ list with the tax rates for local municipalities is 42 pages long with over 2,500 municipalities listed,” O’Brien said.

Here is an example of payroll tax rates in different states:

One tax that most states have is state unemployment tax insurance (SUI). With this tax, employers pay taxes to fund the state’s unemployment insurance program. The rate for these taxes varies based on the employer’s previous unemployment claims. However, if they pay these taxes, they may be entitled to a credit of up to 5.4% of their federal FUTA tax.

Another common type of state payroll tax is disability insurance. A handful of states require employers to provide disability insurance to employees, including California, Hawaii, New Jersey, New York and Rhode Island. Employers don’t always have to contribute to the plan, but in some cases, they may have to contribute the remainder of the premium after employee contributions.

Other common payroll taxes and deductions

There can be many different payroll taxes and deductions that vary by state and locality. Common taxes include:

• Transit taxes: Some states and localities have a transit tax to fund transit programs. Examples include Oregon and the state of New York.
• Workers’ compensation: This isn’t a tax, but in most states, it is a requirement for employers to carry this coverage. It is a fee that covers benefits like lost wages or medical coverage for employees who are injured on the job. In Michigan, for example, employees receive 80% of lost wages during recovery.
• Head tax: Certain localities have imposed a per-employee “head tax” at various times. For example, in 2019, Seattle had a $275 tax per employee on businesses with more than $20 million in revenue per year to fund initiatives to address homelessness in the area.

There are also several tax deductions that may apply at the state level. Examples include:

• Health insurance premiums: If a state mandates employers pay for employees’ health insurance, your business may qualify for certain tax credits or deductions. For example, in New York City, this deduction is often granted to employers with too few full-time employees to be required to offer health insurance under the Affordable Care Act, but that offer coverage anyway.
• Paid family and medical leave programs: In certain states, paid family leave may be funded by employees through payroll deductions. In New York, for example, these deductions are taken out of employees’ wages at a rate of 0.455% of gross wages each pay period.
• Retirement contributions: Several states require contributions to a retirement plan. In most cases, employee contributions come from post-tax income, ensuring that withdrawals are tax-free. However, some offer pre-tax contributions that lower the employee’s tax bill for the year.
• Union dues: In some states, employees can be mandated to become part of a union as a condition of employment. Dues are then automatically deducted from employees’ paychecks. However, employees can opt out of all or some of these dues. For states in which joining is mandated, those who object on religious grounds must donate the equivalent of dues to a nonreligious charitable organization. In 27 states, however, union membership is optional.

Payroll taxes and deductions can vary significantly by state and locality. Review laws in your area and consider meeting with a tax professional to ensure full compliance.

Payroll tax caps and income limitations

Although employers and employees must pay a percentage in taxes on wages, there are some limits on those taxes. This is called the wage base limit. However, the wage base limit only applies to Social Security taxes. There is no such limit for Medicare taxes.

The 2023 wage base limit on Social Security taxes is $160,200. This is the maximum amount of income that is subject to Social Security tax for 2023. Both employees and employers pay half of the taxes up to this limit. The limit usually changes every year, but neither party must pay Social Security tax beyond the wage base limit.

Failure to deposit penalty

The failure to deposit penalty is a fee imposed by the IRS when you don’t make your tax payments on time, in the right way or in the right amount. In other words, this is not only a late fee but also a fee for failing to follow the proper payment procedure. The penalty is a percentage of the taxes you haven’t paid properly.

The failure to deposit penalty is as follows:

• One to five calendar days late: 2% of the unpaid amount.
• Six to 15 calendar days late: 5% of the unpaid amount.
• More than 15 calendar days late: 10% of the unpaid amount.

In addition, there is a 15% fee for amounts not paid more than 10 days after your first notice or when you receive a notice for immediate payment. The IRS also charges interest on unpaid amounts, though the rate depends on the type of penalty.

Note that these amounts don’t stack. For instance, if your payment is 10 days late, the 5% penalty wouldn’t be added to the 2% penalty you already owed. Instead, the 5% penalty would replace your 2% penalty.

Frequently asked questions (FAQs)