Updated January 14, 2021
There are a lot of big things in Minnesota. The Mall of America, the country’s largest urban sculpture garden, a 52-block skyway system, 90,000 miles of shoreline. Despite all those big things in the Land of 10,000 lakes, running a successful small business is probably the biggest one for you. So we’re here to help with another biggie that may be getting in your way — calculating payroll taxes.
Simply grab each employee’s W-4 and wage information and enter them into our handy payroll withholding calculator. We’ll do the math so you can write paychecks and take care of taxes:
See Minnesota tax rates
Federal Payroll Taxes
First things first, we have to give Uncle Sam his due. Federal taxes are the biggest part of payroll taxes. We’ll quickly go over what you need to know when it comes to federal income taxes. If you would like to see a detailed rundown, we invite you to check out our step-by-step guide for more information.
- Calculate Gross Wages:
- For all your hourly employees, multiply their hours worked by the pay rate. Don’t forget to increase the rate for any overtime hours.
- For all your salaried employees, divide each employee’s annual salary by the number of pay periods you have.
- For all employees, don’t forget to add in bonuses, tips, commissions. They all count toward gross wages.
- Calculate Any Pre-Tax Withholdings: If your employees contribute to FSA, HSA, 401(k), or have any other pre-tax benefits, deduct the appropriate amount from their gross pay before you calculate payroll taxes.
- Deduct Federal Income Taxes: Here comes the big enchilada. Federal tax rates can range anywhere from 0% to 37% of taxable earnings. We won’t get into the nitty-gritty here, but you can find further withholding information through the IRS website.
- Deduct and match any FICA taxes:
- Social Security tax, which is 6.2% of each employee’s taxable wages up until they reach $142,800 for the 2021 tax year, which means the maximum Social Security tax that each employee has to pay is $8,853.60 for the year. Employers also have to match the 6.2% tax, dollar-for-dollar.
- Medicare tax, which is 1.45% of each employee’s taxable wages up to $200,000 for the year. For any wages above $200,000, there is what’s called the Additional Medicare Tax of 0.9%, which brings the total rate to 2.35%. Employers have to pay a matching 1.45% of Medicare tax, but only the employee is responsible for paying the 0.9% Additional Medicare Tax.
- Calculate the FUTA Unemployment Tax, which is 6% of the first $7,000 of each employee’s taxable income. Only employers are responsible for paying the FUTA tax, not employees. But here’s a big caveat: if you pay state unemployment taxes in full and on time, you are eligible for a tax credit of up to 5.4%, which brings your effective FUTA tax rate to 0.6%. If this whopping 90% savings in FUTA tax doesn’t get you to pay on time, nothing will.
- Subtract Post-Tax Deductions, which can be anything from court-ordered wage garnishments to child support. Most of your employees won’t have post-tax deductions, but you still have to look out for them.
Minnesota State Payroll Tax Rates
Now that we’re done with federal income taxes, let’s tackle Minnesota state taxes. The State of Minnesota has a progressive income tax, meaning the more money your employees make, the higher the income tax. The income tax rate ranges from 5.35% to 9.85%.
The state tax is pretty high compared to other states, but at least Minnesota doesn’t impose any local taxes.
Minnesota State Unemployment Insurance (SUI)
Employers are required to pay state unemployment insurance. Unfortunately, Minnesota’s is quite complex. It changes on a yearly basis and is dependent on many things, including wages and industry. Unemployment taxes are especially complicated in the construction business. The one constant for all employers is that the wage base is $36,000 for each employee.
Click here to see more details about Minnesota SUI and all the rates.
Cut Those Checks!
Now that you’ve mastered both federal and state taxes, you’re on your way to becoming a big thing in Minnesota! Once you’ve withheld taxes and calculated each employee’s net pay, you’ll be ready to spread the wealth.
Don’t forget to set aside the employer taxes your business is responsible for paying, or else you will have a big tax surprise when year-end rolls around.
Federal tax filings are due quarterly by filing Form 941 and annually by filing Form 940. You can pay taxes on an ongoing basis via the EFTPS payment system. Employment tax due dates can be found here.
Additional MN Payroll Tax Resources:
If you want to learn more about Minnesota payroll taxes, we suggest you start with these websites:
Minnesota Department of Revenue: (651) 282-9999 | Withholding Taxes | Make a Payment
Minnesota Unemployment Insurance: (651) 296-6141 | Unemployment Insurance Program | Register As An Employer