What payroll taxes do small businesses need to pay?

Payroll Taxes for Small Businesses in Virginia

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

Federal Payroll Taxes

• Social Security Tax: Employers must withhold 6.2% of each employee’s wages and match this amount.
• Medicare Tax: Employers withhold 1.45% of wages and contribute an equal amount. Additional Medicare tax withholding applies to high earners.
• Federal Income Tax Withholding: Employers withhold federal income tax based on employee W-4 forms and IRS tax tables.
• Federal Unemployment Tax Act (FUTA): Employers pay FUTA tax on the first $7,000 of each employee’s wages, typically 6.0% with possible credits reducing it to 0.6%.

Virginia State Payroll Taxes

• Virginia Income Tax Withholding: Employers must withhold state income tax from employee wages according to Virginia withholding tables and employee Form VA-4.
• Virginia Unemployment Insurance (UI) Tax: Employers pay UI tax based on their experience rate on the first $8,000 of each employee’s wages. Rates vary by employer and are set by the Virginia Employment Commission.

Operational Considerations

• Registration: Register with the Virginia Department of Taxation and the Virginia Employment Commission before hiring employees.
• Payroll Systems: Use payroll software or services that automatically calculate federal and state withholding, unemployment taxes, and generate required reports.
• Filing and Depositing: Deposit withheld taxes according to IRS and Virginia schedules, which may be monthly or semi-weekly depending on payroll size.
• Recordkeeping: Maintain detailed payroll records for at least four years, including wages paid, taxes withheld, and tax deposits.
• Compliance Updates: Monitor changes in tax rates, wage bases, and reporting requirements annually to adjust payroll processes accordingly.