Taxation Without Representation might be a rallying cry stamped on license plates in our great nation’s capital, but the fact of the matter is that taxes are unavoidable in Washington D.C. Whether you own an artisan coffee shop in Navy Yard or the newest restaurant in Chinatown, as long as you have employees, you’ll have to deal with payroll taxes.
Luckily, that’s what we’re here for. We help you do payroll taxes right so that you can focus on growing your business. We designed a handy payroll tax calculator with you in mind. Just enter income and W-4 information for each employee, and the calculator will take care of the rest.
Federal Payroll Taxes
First of all, let’s tackle federal taxes. Whether your employees are hourly or on salary, all federal taxes remain the same. We’ll go over a quick overview here, but if you want more details, hop on over to our step-by-step guide.
- First, calculate gross wages. If your employee is being paid hourly, simply multiply the number of hours worked during the pay period by the hourly rate. For salaried employees, take their annual salary and divide it by the number of pay periods. Don’t forget about bonuses, commissions, and tips. They all go into gross wages.
- Then, deduct pre-tax withholdings. Some of your employees might choose to participate in 401(k), HSA, FSA, or other eligible benefits. They are subtracted from gross wages before income taxes are taken out.
- Deduct out Federal income taxes. The big enchilada. It’s the largest tax that your employees will pay. The tax rates vary based on income and can range from 0% all the way up to 37%. Click here to read all you need to know about deducting the right amount of federal income taxes.
- Deduct FICA taxes. FICA stands for Federal Insurance Contributions Act, and it was first introduced all the way back in 1935. There are 2 FICA taxes. The first is Social Security tax, which is 6.2% of the first $132,900 of taxable wages per year. Any wages above $132,900 is not taxed. As the employer, you also have to pay this tax. You have to match your employees’ contributions dollar-for-dollar.The second is Medicare tax, which is 1.45% of the first $200,000 of taxable wages per year. After that, the rate jumps up to 2.35%. The 0.9% bump is called the Additional Medicare Tax (obviously). As the employer, you must match the first 1.45% of your employees’ contributions, but you’re exempt from the Additional Medicare Tax.
- Pay FUTA taxes. Your employees get to sit this one out. Only employers are responsible for paying federal unemployment taxes, which are 6% of the first $7,000 of each employee’s taxable income for the year. However, there’s one huge caveat that can reduce your FUTA tax liabilities by a whopping 90%. If you pay your state (errr…district) unemployment insurance in full and on time each quarter, you are eligible for a tax credit of up to 5.4%. But it all depends on which state you do your business in. Watch this nifty IRS video for more details.
- Finally, deduct post-tax withholdings. After you’ve deducted all the proper taxes, there’s just one more thing you have to look out for. Some of your employees may be levied wage garnishments or child support, so watch out for a letter from the court that may show up at your office.
Washington D.C. Payroll Taxes
With six marginal tax brackets based upon taxable income, payroll taxes in Washington D.C. are progressive. Tax rates range from 4% to 8.95%. Single filers will trigger the top rate after earning $1,000,000 in taxable income per year.
Washington D.C. Unemployment Insurance (SUI)
Unfortunately, as an employer in a non-state, you still have to pay State Unemployment Insurance (SUI), which ranges from 1.6% to 7.0%. The wage base for SUI is $9,000 of each employee’s taxable income.
If you’re a new employer (congratulations, by the way!), your rate will be 2.7%.
Let us handle payroll for you
OnPay processes payroll and automates all your tax payments and filings.
Write Those Paychecks!
That’s all she wrote in D.C.! Now that you’ve figured out payroll taxes and withholdings, it’s time to cut those checks.
Just make sure you keep your portion of the FICA and FUTA payments in mind. Those taxes can add up come tax season if you don’t remit them regularly. And you definitely want that FUTA tax credit, don’t you?
All federal tax filings are due quarterly. Employers must complete the IRS Form 941 along with paying the payroll taxes. FUTA unemployment taxes must also be paid quarterly, but you only have the fill out the IRS Form 940 at the end of the year. Or, if you’d rather pay on an ongoing basis, you can use the EFTPS payment system.
All the employment tax filing due dates can be found here.
Additional Washington D.C. Payroll Tax Resources:
Here are a couple of additional resources that we think will help you. Take a look now and thank us later.
Department of Employment Services | New Business Registration | Employer Self Service Portal | Tax Rate Questions
Office of Tax and Revenue | File and Pay Taxes Online