What payroll taxes do small businesses need to pay?

Payroll Taxes for Small Businesses in Maryland

Small businesses operating in Maryland must manage several payroll taxes to stay compliant and avoid penalties. Understanding these taxes is essential for accurate payroll processing and financial planning.

Key Payroll Taxes to Pay

• Federal Payroll Taxes:
  • Social Security Tax: Employers match 6.2% of each employee’s wages up to the annual wage limit.
  • Medicare Tax: Employers match 1.45% of all employee wages with no wage limit.
  • Federal Unemployment Tax Act (FUTA): Employers pay 6.0% on the first $7,000 of each employee’s wages. Maryland may provide a credit that reduces the effective rate.
  • Federal Income Tax Withholding: Employers must withhold federal income tax from employee wages based on IRS withholding tables and employee W-4 forms.
• Maryland State Payroll Taxes:
  • Maryland State Income Tax Withholding: Employers must withhold state income tax from employee wages according to Maryland withholding tables.
  • Maryland Unemployment Insurance (UI): Employers pay UI taxes based on their experience rating and the taxable wage base, which is subject to annual adjustments.
  • Local Income Tax Withholding: Maryland requires withholding for county or Baltimore City income taxes, which vary depending on the employee’s residence.

Operational Considerations

• Registration: Register with the Maryland Department of Labor and the IRS to obtain necessary tax accounts and identification numbers.
• Payroll Systems: Use payroll software or services that automatically calculate and withhold federal, state, and local payroll taxes accurately.
• Timely Payments and Reporting: Submit payroll tax payments and returns on schedule to avoid penalties. Maryland typically requires quarterly reporting for state taxes.
• Recordkeeping: Maintain detailed payroll records, including wages paid, taxes withheld, and tax filings, for at least four years as recommended for audits or reviews.
• Employee Classification: Properly classify workers as employees or independent contractors to ensure correct payroll tax treatment.

As of 2026, payroll tax rates and wage bases may change, so regularly check updates from the Maryland Department of Labor and the IRS to maintain compliance.