Oregon is a state filled with adventure, and running your own small business is nothing short of an adventure. Whether your small business takes tourists on a trip through the mountaintop or feeds Portlandians with savory sandwiches and craft beer, all small business owners have one terribly dull thing in common: payroll taxes.
Luckily, our payroll taxes are here to take the dull out of payroll taxes so you can get back to the adventure of your small business. All you need to do is input W-4 and wage information for each employee, and our payroll tax calculator will calculate both Federal and Oregon payroll taxes for you.
Federal Payroll Taxes
First of all, let’s go through an overview of federal payroll taxes that all employees have to pay, no matter which state they live in. If you would learn more about each individual withholding, head on over to the step-by-step guide that we created just for you.
- Calculate Gross Pay.
- If you have hourly employees, simply multiply their hourly rate by the number of hours worked during the pay period. Remember, you have to pay a higher rate for overtime hours.
- If you have salaried employees, take their annual salary and divide it by the number of pay periods. This number will stay constant unless (or until) you give them a raise.
- And don’t forget bonuses, commissions, or tips all get added into gross wages as well!
- Subtract Pre-Tax Deductions. If your employees participate in 401(k), HSA, or FSA plans, for example, subtract their contributions from gross pay so that their taxable income is reduced by this amount.
- Withhold Federal Income Tax. Now that you have adjusted gross pay, you can determine the federal income tax that you have to withhold. The tax rate ranges from 0% to a high of 37%. We won’t get into the nitty-gritty here, but you can find all the tax bracket information in the IRS Publication 15-T.
- Deduct FICA Taxes. FICA stands for Federal Insurance Contributions Act, which was first introduced to the American population back in 1935. It collects two taxes that both employees and employers have to pay: Social Security and Medicare.
- Social Security Tax: Withhold 6.2% of each employee’s taxable wages up to $137,700 for the 2020 tax year. If an employee makes more than $137,700, any salary above this amount is exempt. As an employer, you also have to pay the IRS 6.2% of your employee’s salary dollar-for-dollar.
- Medicare Tax: Withhold 1.45% of each employee’s taxable wages up to $200,000 for the 2020 year. If an employee makes more than $200,000, an Additional Medicare Tax (super original, we know) of 0.9% should be withheld. As an employer, you are only responsible for matching 1.45% of the first $200,000. You do not need to match the Additional Medicare Tax.
- Calculate the Employer FUTA Tax. FUTA stands for the Federal Unemployment Tax Act. Employers are responsible for paying 6% of each employee’s first $7,000 of taxable income. Your employees are not responsible for paying FUTA. The good news is that if you pay state unemployment tax in full and on time, you are eligible to receive a 5.4% tax credit, bringing your effective FUTA tax rate all the way down to 0.6%.
- Subtract Post-Tax Deductions. Most of your employees won’t have post-tax deductions, but if they do, you will need to make a deduction here and send the deduction to the appropriate jurisdiction. Post-tax deductions can be anything from garnishments like child support to life insurance.
Oregon Payroll Taxes
Now that we’re done with federal income taxes, let’s tackle Oregon state taxes. The State of Oregon has one of the highest top marginal income tax in the country. It’s a progressive income tax ranging from 5% to 9.9%, meaning the more money your employees make, the higher the income tax.
Employees who work in Oregon also have to pay a transit tax of 0.01%. You must withhold this tax from employee wages.
Employers who do business in TriMet or Lane have to pay a transit tax. Rate information can be found here.
Oregon State Unemployment Insurance
Oregon Employers have to pay unemployment insurance that covers those unemployed through no fault of their own. The wage base for 2020 is $42,100. Rates range from 0.7% to 5.4%. If you’re a new employer, use the standard rate of 2.1%.
Sign Those Paychecks!
You’re almost at the finish line! All you have to do after calculating your employee’s net pay is cut those checks.
Don’t forget to set aside your own employer taxes so you can remit them to the IRS quarterly.
Federal tax filings are done by filing Form 941 (quarterly) and Form 940 (annually), but deposits can be made on an ongoing basis through the EFTPS payment system. You can learn more about the tax reporting due dates here.
Additional OR Payroll Tax Resources:
Oregon Department of Revenue | Withholding Tax Tables | Withholding & Transit Taxes | Register As An Employer | Payroll Taxes | Employer Handbook | Unemployment Insurance