What payroll taxes do small businesses need to pay?

Payroll Taxes for Small Businesses in Massachusetts

Small businesses operating in Massachusetts must manage several payroll tax obligations to stay compliant and avoid penalties. Understanding these taxes ensures smooth payroll operations and accurate recordkeeping.

Key Payroll Taxes in Massachusetts

• Federal Payroll Taxes: These include Social Security tax, Medicare tax, and federal income tax withholding. Employers must withhold these amounts from employee wages and remit them to the IRS, along with the employer’s matching contributions for Social Security and Medicare.
• Massachusetts State Income Tax Withholding: Employers are required to withhold Massachusetts state income tax from employee wages. Rates and withholding tables are updated periodically, so using current payroll software or official resources is essential.
• Unemployment Insurance (UI): Massachusetts employers pay state unemployment insurance taxes to fund unemployment benefits. Rates vary based on the employer’s experience rating and industry. New employers typically start with a standard rate.
• Paid Family and Medical Leave (PFML): As of 2026, Massachusetts requires employers to contribute to the PFML program. Employers with six or more employees must withhold a portion of employee wages and pay a share of the premium. This requires careful payroll setup and reporting.
• Employer Medicare Tax Surtax: For high earners, employers must withhold an additional Medicare surtax on wages exceeding $200,000 per employee.

Operational Considerations

• Payroll System Automation: Use payroll software that integrates federal and Massachusetts tax tables to automate withholding calculations and filings.
• Regular Reporting: Submit payroll tax reports and payments on time to the Massachusetts Department of Revenue and the IRS to avoid penalties.
• Recordkeeping: Maintain detailed payroll records, including tax withholdings and employer contributions, for at least four years to comply with audits and reporting requirements.
• Employee Classification: Correctly classify workers as employees or independent contractors to apply payroll taxes accurately.
• Compliance Updates: Stay informed about changes in tax rates, PFML requirements, and reporting deadlines, as these can change annually.