Whether you cook up the best clam chowder in the Cape or build sturdy fireplaces for your customers to cozy up against on a cold winter’s day, you know all the ins and outs of your small business. But most of all, as a Massachusetts small business owner, you know, come payday, you want your employees to be chanting, “We love working for you!” as opposed to “No taxation without representation!” Or something like that.
Maybe we’re thinking of something else, but our point remains the same: one of the most important things to know as a small business owner is paying your employees correctly for the hard work they’ve done. Luckily, we are here to help. All you have to do is grab their W-4 and their wage information. Our calculator will do the rest of the work for you.
Federal Payroll Taxes
Let’s go over federal payroll taxes first, shall we? Our handy payroll calculator will help you figure out the federal payroll tax withholding for both your employees and your business.
We’ve organized federal income taxes into a 6-step overview. If you would like to see a more detailed explanation, we invite you to check out our step-by-step guide here.
- Gross Wages. Always start with gross wages, which represents the dollar amount of earnings an employee has made during the most recent pay period.
- For hourly employees, multiply the number of hours worked in the most recent pay period by their pay rate. Make sure to calculate any overtime hours worked at the appropriate rate.
- For salaried employees, divide each employee’s annual salary by the number of pay periods you have each year.
- And don’t forget about employees who earn commissions, tips, or bonuses. They all get added to gross wages.
- Pre-Tax Withholdings. Some of your employees might contribute to a 401(k), flexible spending account (FSA), or other pre-tax deductions. If so, subtract their contributions from gross pay before you start applying federal payroll taxes.
- Federal Income Tax. The biggest tax of them all, which can range from 0% all the way up to a marginal tax rate of 37%. We won’t get into all the little details here. You can find all the information you need through the IRS Publication 15-A.
- FICA Taxes. Social Security and Medicare
- Social Security: You need to withhold 6.2% of each employee’s taxable wages until they have earned $132,900 for the year. Any wages above $132,900 are exempt. As the employer, you must match this tax dollar-for-dollar.
- Medicare: You need to also withhold 1.45% of each employee’s taxable wages until they have earned $200,000 for the year. You will need to match this tax as well. For employees who earn more than $200,000 in taxable wages, you need to withhold what’s called an Additional Medicare Tax (super original name, right?) of 0.9%. Only the employee is responsible for paying the Additional Medicare Tax, so you don’t have to match it.
- FUTA Tax. The FUTA tax is more commonly known as the unemployment tax, and only employers have to pay this tax, not employees. The tax rate is 6% of the first $7,000 of taxable income an employee earns annually. Note that you can claim a tax credit of up to 5.4% for paying your Massachusetts state unemployment taxes in full and on time each quarter, which means that you’ll effectively be paying only 0.6% on your FUTA tax. It definitely pays to save 90% on your tax bill.
- Post-Tax Deductions. For most of your employees, you’d be done with their federal payroll taxes at step 5, but some employees may be responsible for paying court-ordered wage garnishments or child support. They may also choose to make post-tax contributions to savings accounts, elective benefits (like life insurance), or other withholdings.
Massachusetts State Payroll Taxes
Income taxes in Massachusetts run at a flat rate of 5.05% for the 2019 tax year, which means that regardless of whether your employee makes a hundred dollars or a hundred thousand, the tax rate remains the same.
Massachusetts State Unemployment Insurance (SUI)
On the first $15,000 each employee earns, Massachusetts employers also pay unemployment insurance of between 0.94% and 14.37%. New employers pay 2.42%, and new construction employers pay 6.2% for 2019.
Employers also have to pay a Work Force Training Contribution of 0.056%, and a Health Insurance Contribution of 5%.
You, my friend, are the master of payroll taxes!
You’ve done it! You’ve figured out all your payroll! Now you’re ready to cut some checks.
Don’t forget to set aside the employer taxes your company is responsible for. Those FICA, FUTA, and SUI payments can add up if you don’t remit them quarterly. And remember, you want to get that FUTA tax credit of 5.4%, so you definitely should pay your SUI on time.
Federal tax filings are due quarterly by filing Form 941. FUTA payments are due quarterly, but you just have to fill out Form 940 once a year. You can pay taxes on an ongoing basis via the EFTPS payment system. Employment tax due dates can be found here.
More Helpful Massachusetts Payroll Tax Links:
Commonwealth of Massachusetts | Withholding Taxes | Unemployment Insurance for New Employers | Unemployment Insurance Explained | File and Pay Online | Income Tax Withholding