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What is the difference between state and federal payroll taxes?

On: June 19, 2020

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Every state has their own version of payroll taxes that must be paid. While they may seem like a nuisance, they are an important part of being a business owner and are crucial to keeping your business alive and well. In California, there are four general payroll taxes that are taken out of each paycheck for various programs and agencies in the state government with another chunk being taken out for various federal programs as well. If you are confused about what exactly they are, here is the difference between state and federal payroll taxes. What are the federal payroll taxes? There are a handful of programs and agencies that receive the funds taken out from your paycheck each month.  The funds for these programs are handled by the Internal Revenue Service, which is the tax authority for all federal matters. Federal payroll taxes include Social Security, federal unemployment insurance, Medicare, and federal income tax withholding. Together, Social Security and Medicare taxes make up the Federal Insurance Contributions Act (FICA) tax. The national government also collects federal payroll taxes to fund dedicated programs such as Social Security, healthcare, unemployment compensation, and workers’ compensation. Usually, the taxable wage cap for Social Security is modified each year, which depends upon the increases in the national average wage. As of 2019, the Social Security tax is 5.2% on wages up to $132,900.  On the other hand, the Medicare tax is 1.45% on all wages, regardless of the national wage, however, this can go up depending on how much the total amount being reported is. The more money being made means the more money being paid in taxes to the government. What are the state payroll taxes? California has four state payroll taxes, all of which are given out by the Employment Development Department (EDD). These taxes are the unemployment insurance (UI) tax, employment training tax (ETT), state disability insurance (SDI) tax, and California personal income tax (PIT). The unemployment insurance tax goes toward the unemployment program that is run by California, which changes each year depending on the unemployment rate. The employment training tax is a dedicated tax that tries to help businesses and individuals who are in professions that help the overall state economy. Labor and resource jobs, as well as the tools and programs that are needed for a thriving state economy, are the first to receive these funs. The state disability insurance tax is taken out for those why are unable to work for non-work related reasons, such as illness or pregnancy. This tax is for those who are unable to work, whether it be through paid family leave or a serious illness. The final tax paid for in California is the personal income tax, which is paid by all of those who make money in the state. This is one of the most common taxes across the nation and is taken out through your paychecks. Always make sure to call Leading Tax Group and don’t attempt to do it yourself.
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