Maple syrup, apple pie, and a whole lot of ice cream. Many of us would say they’re all the food groups we need! Vermont is a very special place. That’s why you started a small business here. And whether you strive to grow as big as Ben & Jerry’s or prefer to keep your small business small, there is one thing that you and all the other small business owners can agree upon: you’d rather dig into a pint of Chunky Monkey than worry about payroll taxes.
We couldn’t agree more, so we went ahead and designed a nifty payroll calculator that can figure out all of the federal and Vermont state payroll taxes for you and your employees. All you have to do is input wage and W-4 information for each employee into the calculator, and it will do the rest of the work for you.
Federal Payroll Taxes
First of all, let’s give Uncle Sam his due. Here’s a quick rundown of the components that go into federal tax withholdings. For a more detailed explanation on all of the steps below, we invite you to head on over to our comprehensive step-by-step guide.
- Gross wages, which is simply the amount of money an employee has earned during the last pay period.
- For hourly employees, multiply the number of hours worked by their pay rate — and make sure you don’t forget to take overtime into consideration.
- For salaried employees, divide each employee’s annual salary by the number of pay periods you have over the course of a year.
- Bonuses, commissions, and tips are all part of gross wages as well.
- Subtract any pre-tax withholdings. If your employees have 401(k) accounts, flexible spending accounts (FSA), health savings accounts (HSA), or any other pre-tax withholdings, subtract them from gross wages prior to applying payroll taxes.
- Deduct federal income taxes, which can range from 0% to 37%. We won’t get into the nitty-gritty here, but you can find further withholding information through the IRS Publication 15-T.
- Deduct and match any FICA taxes to cover Social Security and Medicare taxes:
- For Social Security tax, withhold 6.2% of each employee’s taxable wages until they have earned $137,700 in a given calendar year. As an employer, you must match this tax.
- For Medicare tax, withhold 1.45% of each employee’s taxable wages until they have earned $200,000 in a given calendar year. You must also match this tax. For employees who earn more than $200,000 per year, you’ll need to withhold an Additional Medicare Tax of 0.9%, which brings the total employee Medicare withholding above $200,000 to 2.35%. You don’t need to match the Additional Medicare Tax. Only employees are responsible for paying this tax.
- Pay FUTA unemployment taxes, which is 6% of the first $7,000 of each employee’s taxable income. FUTA taxes come with a huge caveat that you should know about. You can claim a tax credit of up to 5.4% for state unemployment tax you pay, as long as you pay in full and on time. It’s an easy way to save a whopping 90%, so make sure you take advantage! Only you as the employer are responsible for paying FUTA taxes, so you don’t need to withhold FUTA from your employees’ paychecks.
- Subtract any post-tax deductions. Most of your employees won’t have any post-tax deductions, but if they do, you will need to withhold things like court-ordered wage garnishments, child support, etc. Make sure you take these into consideration as well.
Vermont State Payroll Taxes
Now that we’re done with federal payroll taxes, let’s look at Vermont state income taxes. Vermont charges a progressive income tax, broken down into four tax brackets. The 2020 tax rates range from 3.35% on the low end to 8.75% on the high end. Employees who make more than $200,200 will hit the highest tax bracket.
There are no local taxes, so all of your employees will pay the same state income tax no matter where they live.
Vermont State Unemployment Insurance
As an employer in Vermont, you have to pay unemployment insurance to the state. The 2020 rates range from 0.8% to 6.5% on the first $16,100 in wages paid to each employee in a calendar year.
If you’re a new employer (congratulations on getting started!), you pay a flat rate of 1%.
Remember to pay in full and on time so that you can get a FUTA tax credit!
Cut Those Checks!
Time to dig in! You’ve checked it off your to-do list so you can focus on growing your business. Once each employee’s net pay is calculated (after taking deductions and withholdings into consideration), you’re good to go.
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 fill out Form 941 to file federal taxes on a quarterly basis, and Form 940 to report your annual FUTA liabilities. You can pay taxes online using the EFTPS payment system. All the IRS employment tax due dates can be found here.
More Vermont Payroll Tax Resources:
If you would like to learn more, here are some helpful links that we think can be useful:
Vermont Department of Labor (802) 828-4000 | Register Your Business | Unemployment Insurance
Vermont Department of Taxes (802) 828-2505 | Withholding Tax | Tax Forms