How do payroll taxes differ from income taxes?

Understanding Payroll Taxes vs. Income Taxes in Washington

In Washington state, distinguishing between payroll taxes and income taxes is essential for smooth business operations and compliance.

Payroll Taxes

Payroll taxes are taxes that employers must withhold from employees' wages and also pay on behalf of their employees. These taxes fund programs such as Social Security, Medicare, and unemployment insurance.

• Federal Payroll Taxes: Employers in Washington must withhold Social Security and Medicare taxes (FICA) from employee wages and match these amounts.
• Federal Unemployment Tax (FUTA): Paid by employers to fund unemployment benefits.
• Washington State Unemployment Insurance (UI): Employers pay state unemployment taxes based on their experience rating and payroll size.
• Paid Family and Medical Leave (PFML): Washington requires contributions from both employers and employees to this state program.

Income Taxes

Unlike many states, Washington does not impose a state income tax on individuals or employees. Therefore, businesses in Washington do not withhold state income tax from employee wages.

However, federal income tax withholding still applies, and employers must comply with IRS requirements for withholding and reporting federal income taxes.

Operational Considerations

• Payroll Setup: Automate payroll systems to accurately calculate and withhold federal payroll taxes and Washington-specific contributions like PFML.
• Reporting Requirements: Submit timely payroll tax filings to the IRS and Washington Employment Security Department.
• Recordkeeping: Maintain detailed payroll records to support tax filings and audits.
• Employee Classification: Correctly classify workers to ensure proper payroll tax treatment.

As of 2026, businesses in Washington should monitor updates to payroll tax rates and PFML contribution requirements to maintain compliance.