Payroll Tax Rates in 2019: A Full Rundown

It can be difficult for a business owner to worry about the strategic aspects of running a business, as well as the financial ones, such as the benefits outlook and payroll tax rates. It can be especially hard for SMEs (especially in today’s job market) that don’t have many resources since the process of calculating payroll taxes, depositing them, and filing them properly can be tedious.

That is why a lot of companies offer payroll services to SMEs. Basically, they handle the payrolls of entire companies. However, whether you do your payroll taxes in-house or through a third-party observer, you should still know sufficiently about payroll tax rates.

Types of Payroll Taxes

To understand payroll taxes, you need to know the 4 types of taxes for both employees and employers.

The following are the 4 taxes that make up employee payroll taxes:

  • State Income Tax
  • Federal Income Tax
  • Medicare
  • Social Security

The following are the 4 taxes that make up employer payroll taxes:

  • State Unemployment Tax
  • Federal Unemployment Tax
  • Medicare
  • Social Security

The following provides the rates for these taxes:

  • Federal Unemployment: The employer pays 6.0% while the employee pays nothing. The total is 6.0%, and the cap is at $7,000. This cost is to cover the administration of unemployment insurance and job service programs.
  • State Unemployment: The payroll tax rate for the employer is variable but zero for the employee. This means that the total, as well as the cap, is variable. This amount is paid to state workforce agencies to pay for unemployment benefits to state workers.
  • Medicare: The employer and employee both pay 1.45%, which puts the total at 2.9% with no cap. This tax is deposited into a trust fund that covers some medical costs of the Medicare beneficiaries.
  • Social Security: The employer and employee both contribute 6.2%, which puts the total at 12.4%, with a cap of $132,900. This tax puts 85 cents out of every dollar into a trust fund that pays monthly benefits to retirees and their families. The other 15 cents help pay for the benefits of people with disabilities and their families.

Calculating Payroll Tax Rates in 2019

Typically, every employee’s paycheck has three basic taxes levied on it. These are the social security tax, Medicare, and the federal income tax. Some states also put in a state income tax.

The social security amount is calculated at 6.2% of the gross pay. The maximum required payment will be $8,239.80 since it is capped at $132,900. This means that even if you earn more than the cap, your amount will remain the same.

As for Medicare, you do the same by taking out 1.45% of your gross pay. However, keep in mind that if you earn more than $200,000 annually, you will have to pay an additional 0.9% for Medicare wages, which is only paid by the employee and not the employer.

Your federal income tax will be determined when you fill out Form W-4, which shows any exemptions and the filing status of the employee. You then need to look at IRS Publication 15B, Section 17, which shows the income tax withholding table. It will help in calculating the exact federal income tax for your employees.

Your state income tax is paid in the same way, through an annually published tax table. However, each state will have its own schedule, so you’ll have to check the state website for details.

Payroll Tax Penalties

 It’s best to pay your taxes on time, since not doing so can result in severe penalties, and can even accrue interest in the long run. That is why a lot of companies opt for payroll services, in order to be free from such issues.

To do it right, you need to make sure you pay the right amount at the right time while being compliant. If you fail to do any of the three things correctly, you will be subject to the FTD (Failure to Deposit) penalty, which varies according to how late your deposit is.

There tends to be a four-tier penalty system per IRC 6656(b)(1). The following is a summary of the amounts you will be liable for if you’re late with your deposit for any reason:

  • If you are 1 to 5 days late, you will pay a 2 percent additional penalty.
  • If you are 6 to 15 days late, you will pay a 5 percent additional penalty.
  • If you are more than 15 days late, you will pay a 10 percent additional penalty.
  • If you fail to pay the amount 10 days after the date of the first notice, you will pay a 15 percent penalty (5% will be added to the already enforced 10% penalty).

It is best to avoid mistakes when it comes to payroll taxes. You should keep in mind that payroll tax rates are subject to change every year and that you will need to revise your payroll systems at the start of every tax year.