Rhode Island may be the smallest state in the union, but as one of the original 13 colonies, it’s steeped in the rich history of our great nation. You enjoy being in a small state that packs a big punch. That’s why you started your small business here. But whether you own the best Italian restaurant in Providence or the coolest bar in Newport, there is one thing you and the other 200,000 Rhode Island small business owners definitely don’t enjoy: payroll taxes.
That’s what we’re here for. We designed a handy payroll calculator to ease your payroll tax burden. All you need to do is enter wages earned and W-4 allowances for each of your employees. Our calculator will calculate gross pay, take out deductions, and come up with the net pay you’ll need to write your employees’ paychecks.
Federal Payroll Taxes
First of all, we need to take care of Uncle Sam. You can use our Rhode Island payroll calculator to figure out your employees’ federal withholding as well as any additional taxes you are responsible for paying as the employer.
Here’s a quick overview of what you need to know when you’re calculating federal payroll taxes. If you would like to get into each calculation in detail, check out our step-by-step guide.
- Calculate Gross Wages:
- For all your hourly employees, multiply their hours worked by their pay rate (and don’t forget to pay the higher rate for any overtime hours worked).
- For all your salaried employees, divide each employee’s annual salary by the number of pay periods your business has.
- Bonuses, commissions, and tips are all part of gross wages as well.
- Calculate Any Pre-Tax Deductions:
- If your employees contribute to 401(k), FSA, HSA, or any other pre-tax withholding accounts, subtract their contributions from gross pay prior to applying payroll taxes.
- Deduct (and Match) FICA Taxes:
- Social Security Tax: Withhold 6.2% of each employee’s taxable wages up until they reach total earnings of $137,700 for 2020. Any earnings above $137,700 are exempt from Social Security Tax. As an employer, you will also need to pay this tax by matching your employees’ tax liability dollar-for-dollar.
- Medicare Tax: Withhold 1.45% of each employee’s taxable wages up until they have reached total earnings of $200,000 for the year. You as the employer will also need to match this tax liability dollar-for-dollar. However, for salaries above $200,000, employees need to pay what’s called an Additional Medicare Tax. The rate for this additional tax is 0.9%, which makes the total 2.35%. Only the employee is responsible for paying the Additional Medicare Tax, not the employer.
- Pay FUTA Unemployment Tax:
- You will need to pay 6% of the first $7,000 of taxable income for each employee per year, which makes your maximum FUTA tax per employee per year $420.Note that if you pay state unemployment taxes in full and on time, you are eligible for a tax credit of up to 5.4%, making your FUTA tax rate effectively 0.6%. FUTA tax is the sole responsibility of the employer. Your employees are not responsible for paying this tax.
- Deduct Federal Income Tax:
- This is the biggest tax of them all. Federal income tax ranges from 0% to 37%, depending on the tax bracket that your employees are in. We won’t get into the nitty-gritty here, but you can find further withholding information through the IRS Publication 15-T.
- Subtract Any Post-Tax Deductions:
- Many of your employees won’t have post-tax deductions, but some of them could be responsible for paying court-ordered wage garnishments, like child support, etc. If so, you will need to withhold these deductions from their paychecks.
Rhode Island State Payroll Taxes
Now that we’re done with federal income taxes, let’s tackle Rhode Island state taxes. The state has a progressive income tax, broken down into three tax brackets, meaning the more money your employees make, the higher the income tax. The rates range from 3.75% to 5.99%.
The tax breakdown can be found on the Rhode Island Department of Revenue website.
Besides the state income tax, The Ocean State has three additional state payroll taxes administered by the Division of Taxation: 1) Unemployment Insurance, 2) Job Development Fund, and 3) Temporary Disability Tax. You’re responsible for paying the first two taxes, while the last tax should be withheld from each employee’s paycheck.
- What You Pay For:
- Unemployment Insurance (UI) provides temporary payments to those who are unemployed against their own capabilities. Employers pay between 0.9% and 9.4% on the first $24,000 in wages paid to each employee in a calendar year. If you’re a new employer (congratulations, by the way!), you pay 1.04%.
- Job Development Fund, which is funding for training. You are responsible for paying 0.21% of the first $24,000 of wages per employee a year.
- What Is Withheld From Employees:
- State Disability Tax provides temporary funding for non-work related injury or illness. For 2020, the rate is at 1.3% of annual income up to $72,300.
Now Write Those Paychecks!
You’re almost at the finish line! You’ve checked “payroll taxes” off your to-do list so you can move onto the important things. Once each employee’s net pay is calculated (taking deductions and withholdings into consideration), you’re in the clear.
All you have to worry about is getting your employees paid on time as well as setting aside whatever you owe in FICA and unemployment taxes. Those numbers can add up quickly!
You will need to use Form 941 to file federal taxes quarterly, and Form 940 to report your annual FUTA tax. You can pay taxes online using the EFTPS payment system. More information about employment tax due dates can be found here.
Additional Rhode Island Payroll Tax Resources:
Our calculator is here to help, but of course, you can never learn enough, especially when it comes to payroll taxes. Here are some additional resources and contact information to help you run payroll:
Department of Labor and Training | Contact Information | Unemployment Insurance | Temporary Disability
Division of Taxation | Contact Information | Business Registration | Employer Handbook