Are State Payroll Taxes Handled Differently From Federal?

When you own a small business, in addition to federal payroll taxes, you will usually be required to file and pay some sort of state payroll tax. While not all states require citizens to pay state income taxes, many do. However, even if you're not required to withhold state income payroll taxes, you may be required to withhold other types of taxes such as workmen's compensation or unemployment insurance.

How State and Federal Payroll Taxes Differ

Depending upon the state you do business in, the way state payroll taxes and federal payroll taxes are handled may be very similar or quite different. Similarities between the two types of taxes would generally include: requirements for timely filing of reports and tax payments, fines and penalties for failing to make tax deposits or tax payments and authorization from the taxing agency to hire employees such as an employer identification number.

Other than the above mentioned similarities, your State Department of Revenue and the Internal Revenue Service (IRS) may do things quite differently. Your state may have different requirements for how often you must file withholding tax reports and make tax deposits or payments. While the IRS generally requires monthly reports and payments, some states require that you only report every quarter or even once or twice a year.

Because state and federal requirements for filing and paying payroll taxes may be quite different, you may want to seek the assistance of a certified public accountant or a payroll tax service. Even if you decide to handle the filing, reporting and payment of tax paid payroll taxes in the future, getting quality advice from professionals when beginning your business is always a good idea. Many business owners across the country relay that state departments of revenue can be more aggressive and demanding in collection efforts than the Internal Revenue Service. In fact, most businesses closed by taxing authorities are closed at the state level and not by the IRS.

Other Things to Consider about State Payroll Taxes

Worker’s Compensation Insurance is required in most states, and usually is a state requirement and not that of the federal government or the IRS. Worker compensation insurance covers losses to employees in the event they are injured while working for you; however, it is generally the employer's responsibility to pay for the coverage. This type of coverage is different than unemployment insurance which covers the uninsured employee when he/she loses his/her job for no fault of their own.

Although state payroll tax filing and reporting requirements may differ from the Internal Revenue Service, most states use forms and reporting methods that are very similar to those used by the IRS. In order to find out what your State's requirements are for payroll taxes, you should seek the advice of a certified public accountant in your area or visit the Department of Revenue website for your state. In fact, before you ever hire your first employee, you should spend a considerable amount of time checking the requirements your state has for payroll taxes.