Updated January 12, 2021
According to the Small Business Association, there are over 870,000 small businesses in Michigan, and they account for 99.6% of all businesses in the state. Whether you’re cooking up the next big coney dog stand or making t-shirts for the Red Wings, one thing all small businesses have in common is that everyone has to deal with the dreaded payroll taxes.
Luckily, our payroll tax calculator is here to help the wide range of small businesses Michigan has to offer. All you need to do is enter each employee’s wage and W-4 information. Our payroll calculator will take care of the rest.
Let’s get started, shall we?
See Michigan tax rates
Federal Payroll Taxes
First of all, we gotta give Uncle Sam his fair share. Below is a quick overview of all the steps that go into calculating federal payroll taxes. If you would like to see a more detailed explanation, feel free to check out our step-by-step guide here.
- Gross Wages. Gross wages represent the amount of money an employee has earned during the most recent pay period. The most popular methods of earning income are hourly and salary, but please don’t forget about commissions, bonuses, and tips as well.
- For hourly employees: Multiply the number of hours worked by the employee’s hourly pay rate. Make sure to calculate any overtime hours worked at a higher rate.
- For salaried employees: Divide the employee’s annual salary by the number of pay periods per year. If you pay your employees twice a month, then you have 24 pay periods per year.
- Pre-Tax Withholdings. Some of your employees may have pre-tax benefits, such as FSA, HSA, or retirement savings accounts. You need to subtract their contributions into these accounts from their gross pay before you start applying federal payroll taxes.
- Deduct federal income taxes, which can range from 0% to 37%. Withholding information can be found through the IRS, so we won’t go through all the nitty-gritty details here.
- Deduct FICA taxes to cover Medicare and Social Security taxes:
- Social Security tax: Withhold 6.2% of each employee’s taxable wages up to their wage limit in a given calendar year. For 2021, the wage limit is $142,800 so any taxable income above this amount is exempt from the Social Security tax. As the employer, you must match your employees’ tax contributions.
- Medicare tax: Withhold 1.45% of each employee’s taxable wages until they have earned $200,000 in a given calendar year. You will need to match your employees’ Medicare tax contributions dollar-for-dollar as well. Employees who earn more than $200,000 in taxable wages must pay what’s called an Additional Medicare Tax (super original, right?). The tax rate is 0.9% on top of the original 1.45%. However, only the employee is responsible for paying the Additional Medicare Tax, so you don’t have to match the extra 0.9%.
- Pay FUTA unemployment taxes: This one is all on you, as only employers are responsible for paying the FUTA tax. The rate is 6% of the first $7,000 of taxable income an employee earns annually. The tax pays for federal unemployment benefits. Note a huge caveat that you can claim a tax credit of up to 5.4% for the Michigan state unemployment taxes you pay. That means that at the end of the day, you’ll only have to pay 0.6%. Watch this IRS video on how you can claim your FUTA tax credit.
- Deduct post-tax deductions (if necessary): Some employees may have to pay court-ordered wage garnishments or child support. Deduct the proper amount here before you write that paycheck.
Michigan Payroll Taxes
Michigan has a single income tax rate of 4.25% for all residents. Simple enough. But these cities charge an additional income tax ranging from 1.0% to 2.4% for Michigan residents.
Plus, you also need to factor in Michigan’s state unemployment insurance (SUI). Rates range from 0.06% to 10.3% of each employee’s income, up to a wage base of $9,500. If your business is new, the unemployment tax rate is set at 2.7%. New construction employers have to pay 8.2%.
Now that you’ve managed to get through both federal and state payroll tax withholdings, you’re ready to cut their checks.
You obviously need to make sure your employees get paid on time, but please don’t forget to set aside money for employer taxes. FICA, FUTA, and SUI payments can add up if you don’t remit them on a regular basis.
Federal tax filings are due quarterly by filing Form 941. FUTA taxes are due quarterly, but you only need to file annually using Form 940. You can pay taxes using the EFTPS payment system.
Detailed information on employment tax due dates can be found here.
More Helpful Michigan Payroll Tax Links:
Withholding Tax Forms｜Michigan Department of Treasury
Register as an Employer｜Michigan Department of Treasury
All About Unemployment Insurance｜Michigan Unemployment Insurance Agency