The Do’s and Don’ts of Payroll in Pennsylvania
Your employees deserve to be compensated in the event that they work overtime, and you need to withhold taxes from their paychecks so you can remit them to the government on a regular basis. While these two things might seem simple, it’s important that you do both correctly – otherwise, you could face serious fines or even legal action from your state government. Keep reading this guide on how to do payroll in Pennsylvania correctly so you can do everything right!
Federal Deductions
FICA taxes are the Social Security and Medicare taxes that employers withhold from employees’ paychecks. As of January 1, 2018, both the employee and employer share the same rate for Social Security taxes: 6.2%. For Medicare tax, employees are responsible for 1.45% while their employer pays 1.45%. Together these two make up 7.65% of an employee’s gross wages.
Pennsylvania State Tax Deductions
Pennsylvania taxes are more complicated than they seem. There are deductions that can be taken at the state level, which will reduce the amount of income tax owed by an individual or corporation. Below is a list of some of the most common deductions that taxpayers often overlook:
– Moving expenses: If you moved from another state to start your job, you may be able to deduct your moving expenses as business related costs if you meet certain criteria.
Federal Income Tax Withholding
Income tax withholding is the process by which a portion of your wages are taken out before you receive them. The employer uses IRS guidelines to calculate how much should be withheld from your paycheck, then sends that amount to the appropriate agency. Employers must withhold federal income tax from employee wages unless those wages are subject to social security or Medicare withholding.
Calculating Social Security Taxes
– The employer is responsible for withholding the employee’s share of the Social Security tax from the employee’s salary. This can be done by multiplying the employee’s Social Security wages (up to $117,000) by 6.2% to find out how much needs to be withheld from their paycheck.
– If an employer chooses not to withhold any Social Security taxes, then they will owe a recapture tax when filing their federal tax return.
Calculating FUTA Taxes
The Federal Unemployment Tax Act (FUTA) is a federal law that mandates employers pay a tax on their employees’ wages. This applies to all businesses with at least one employee and an annual salary exceeding $7,000. There are many ways to calculate FUTA taxes so be sure you know the specifics for your state (e.g., deductible amounts, maximum percentage).
Unemployment Insurance Tax (SUTA) for PA employers
Pennsylvania employers are required to pay the state unemployment insurance tax (SUTA). The SUTA is a federal law that imposes a tax on employers who do not participate in an approved state unemployment compensation program. The SUTA tax rates depend on the number of wages paid by the employer during the calendar year. Employers with annual wages over $1,500 must pay .75% or more depending on how much they paid in wages.
Required Wage Reporting by PA Employers
Pennsylvania employers are required to submit an annual report containing information about the wages paid to each employee. The annual report must be filed with the Department of Labor and Industry on or before March 31st for the preceding calendar year.
Recordkeeping Requirements for PA Employers
Employers should maintain a record of the hours worked by each employee including the date on which they were worked. Employers must maintain these records for four years.
