Types of Payroll Deductions
Types of Payroll Deductions
Any business that hires employees must register to pay payroll taxes in the state(s) where it has employees. The requirements and processes are essentially the same regardless of a business’s legal structure.
However, payroll tax rules vary from state to state, which can become confusing (especially for employers with remote employees in states other than where their company is located). Business owners need to educate themselves, ideally enlisting the help of a payroll specialist or accountant, to gain an understanding of the payroll taxes and other withholdings they will be responsible for.
The following payroll taxes and withholdings may apply to LLCs and Corporations depending on the business location, where employees are based, and other factors:
- Federal income tax – Withheld from employees’ paychecks.
- State income tax – Withheld from employees’ paychecks.
- Local income tax – Withheld from employees’ paychecks.
- FICA – Social Security and Medicare Taxes. (Half is withheld from employees’ paychecks and the employer pays the other half.)
- State and local payroll taxes – Some might be withheld from employees’ pay while others might be paid by employer.
- Unemployment taxes – FUTA (Federal unemployment tax is paid by employer and not withheld from employee paychecks.); SUTA (State unemployment tax is typically paid by employers and not withheld from employee paychecks. Also known as “SUI,” state unemployment insurance.)
- Workers’ compensation insurance – Paid by employer, not deducted from employee paychecks.
- Employee wage garnishments – Withheld from employees’ paychecks.
- Benefits and other voluntary deductions from employee pay.
Excerpt by Nellie Akalp
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