What payroll taxes do small businesses need to pay?

Payroll Taxes for Small Businesses in North Carolina

Small businesses operating in North Carolina must manage several payroll tax obligations to remain compliant and avoid penalties. Understanding these taxes helps streamline payroll processing and ensures proper recordkeeping.

Key Payroll Taxes to Pay

• Federal Income Tax Withholding: Employers must withhold federal income taxes from employees’ wages based on IRS tax tables and employee W-4 forms.
• Social Security and Medicare Taxes (FICA): Employers are required to withhold 6.2% for Social Security and 1.45% for Medicare from employees’ wages and match these amounts.
• Federal Unemployment Tax Act (FUTA): Small businesses pay FUTA tax on the first $7,000 of each employee’s wages. This tax funds federal unemployment benefits.
• North Carolina State Income Tax Withholding: Employers must withhold state income tax from employee wages based on North Carolina withholding tables.
• North Carolina Unemployment Insurance (UI): Employers pay state unemployment insurance taxes. Rates vary based on industry and employer experience rating.

Operational Considerations

• Registration: Register with the IRS for an Employer Identification Number (EIN) and with the North Carolina Department of Revenue for state withholding and unemployment accounts.
• Payroll Systems: Use payroll software or services that calculate federal and state withholdings accurately and generate required tax forms like W-2 and 941.
• Reporting and Deposits: Deposit withheld taxes according to federal and state deposit schedules. File quarterly payroll tax returns (e.g., IRS Form 941, NC withholding reports).
• Recordkeeping: Maintain payroll records, tax filings, and deposit confirmations for at least four years to comply with audit and compliance requirements.
• Employee Classification: Properly classify workers as employees or independent contractors to ensure correct payroll tax treatment.

As of 2026, staying current with changes in tax rates and reporting requirements is essential. Automating payroll tax calculations and filings can reduce errors and save time for small business operations in North Carolina.