What payroll taxes do small businesses need to pay?

Payroll Taxes for Small Businesses in Pennsylvania

Small businesses operating in Pennsylvania must manage several payroll tax obligations to stay compliant and avoid penalties. Understanding these taxes helps streamline payroll processing and ensures accurate bookkeeping.

Federal Payroll Taxes

• Social Security and Medicare Taxes (FICA): Employers must withhold Social Security and Medicare taxes from employees' wages and pay a matching amount.
• Federal Income Tax Withholding: Employers withhold federal income tax from employees' paychecks based on IRS withholding tables and employee Form W-4 information.
• Federal Unemployment Tax Act (FUTA): Employers pay FUTA tax to fund unemployment benefits. This is an employer-only tax and is not withheld from employees.

State Payroll Taxes in Pennsylvania

• Pennsylvania State Income Tax Withholding: Employers must withhold state income tax from employees' wages according to Pennsylvania Department of Revenue guidelines. Employees submit Form PA-W-4 to determine withholding.
• Local Earned Income Tax (EIT): Pennsylvania requires withholding of local earned income tax, which varies by municipality. Employers must register with the appropriate local tax collection agency.
• Pennsylvania Unemployment Compensation Tax: Employers pay this tax based on their experience rating and taxable wage base to fund state unemployment benefits.

Operational Considerations

• Registration: Register with the IRS, Pennsylvania Department of Revenue, and local tax authorities to obtain necessary tax accounts and reporting access.
• Withholding and Deposits: Calculate and withhold the correct amounts each payroll cycle. Deposit withheld taxes according to federal and state schedules to avoid interest and penalties.
• Reporting Requirements: File quarterly and annual payroll tax reports with federal and state agencies, such as IRS Form 941 and Pennsylvania Employer Withholding Statements.
• Recordkeeping: Maintain accurate payroll records including wages, tax withholdings, deposits, and filings for at least four years, supporting audits and compliance reviews.
• Automation: Use payroll software or services that integrate federal, state, and local tax calculations to reduce errors and save time.

As of 2026, payroll tax rates and local tax jurisdictions may change, so regularly review updates from federal and Pennsylvania tax authorities to maintain compliance.