Filing Employee Taxes At The State and Local Level
Filing employee taxes at the state and local level are different than filing at the federal level. Learn the differences in the processes before you file.
State Level Taxes
You must apply for a State Identification Number (SIN) in the same way you did for the federal identification number. This time, look in your phone book in the Government section (blue pages in my area) for the State Tax Office/State Department of Taxation or simply link to our State Tax Form page. Let this office know that you are a new employer and they will send you a packet filled with information on how you can pay them too.
It’s important to know that if you are employing individuals in multiple states, you must file for a SIN in every state where your employees are working. This does not apply to employees who commute to your office from a different state. The employee must be actually conducting the majority of their work from a different state for you to apply for the additional SIN. You will then pay state taxes to multiple states.
State taxes are normally paid on a quarterly basis (but this may differ from state to state). Another variable is who pays the state tax. In some states, the employee deduction (EE) for state tax will be matched by the employer (ER). In some states, only the employee pays the state tax. So not every state has an employer side tax. Check with your state office to learn about your own situation.
This could be good news for you! But don’t forget about the Unemployment Tax at the State level. You are responsible for this no matter what. To learn about this, contact your local Employment Office. Register with them and again get an identification number. The state will assess you an amount and you pay it on a quarterly basis. It is usually more than FUTA. To give you an idea, I have three employees and I pay $75 per quarter for the state unemployment tax (not too bad).
Remember that if an employee is let go from your business (see article: Letting Employees Go), he or she can apply for Unemployment Compensation which you will be responsible to pay. The Employment Office will bill you for this. It will not be equivalent to the employee’s salary that you have been paying, but it is an additional cost.
Worker’s Compensation is another state tax that needs to be paid. Again, call their office in your state to find out how you need to register as an employer. The Office of Worker’s Compensation will ask you for a description of each employee and his/her job. Then they categorize the jobs and assess what degree of hazard is associated with each one. The percentage of tax you owe as an employer is based on the degree of risk the State assigns to the job(s) in your business. If you have a manufacturing or construction business, be prepared to owe more for Worker’s Comp (more risk). Note: You need to ask the State Worker’s Compensation Office for the categories they have assigned to their employees and what the categories mean. I have had personal experience with this office miscategorizing employees. The employer I was working for at the time realized too late that he had been overpaying Worker’s Compensation taxes for years due to misrepresentation. Be aware that some third party organizations, such as a Chamber of Commerce have group plans for lower cost Worker’s Compensation rates. If you belong to a professional organization or association, check this out.
Local Level Taxes
In my personal experience as a small business owner, I have found that the local level of government seems to be much less organized than the state or federal levels. The tax paid by the employee is definitely for the city/township in which he or she works. There may or may not be another local tax for the city of residence for the employee (if different than that of the business). Whether or not the employee and employer share the tax depends upon the particular locality. Check with your city officials for more details (the Government section of your phone book).