The Complete Guide To New York Payroll & Payroll Taxes
New York has a long list of payroll taxes businesses have to pay. Learn exactly what these New York payroll taxes are and how much they cost.
New York payroll taxes can be complicated. New York has a long list of state and local payroll taxes, as well as labor laws and HR regulations. Learn exactly how payroll works in the state of New York in this complete guide. We’ll cover what New York payroll taxes are, how much they cost, and which payroll and HR laws your business has to follow.
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State & Local Payroll Taxes In New York
New York has its own laws and regulations that small businesses must comply with, in addition to federal payroll taxes like FICA and FUTA.
There are several payroll taxes to familiarize yourself with as a small business in New York State. Let’s take a look at some common taxes.
New York Payroll Tax Exclusions & Exemptions
New York tax law requires employers to withhold the amount estimated to be due from an employee’s gross income. This includes some specific exclusions and exemptions that may impact how you complete payroll.
Exclusions represent income that is not subject to taxes and counts separately from taxable income. Exclusions are different from deductions in that no cost incurred by the taxpayer is needed to qualify. Some exclusions relevant to small businesses include the following:
- Independent contractors
- Students enrolled in certain work-study programs
- A sole proprietor, their spouse, or child under the age of 21
- Persons whose employment is subject to the Federal Railroad Unemployment Insurance Act
- Freelance reporters under certain conditions
- Licensed insurance agents or brokers under certain conditions
Meanwhile, exemptions apply to employees who do not have certain taxes withheld in their paycheck. Here are some scenarios that can involve an exemption:
- Employees under age 18 or over age 65, and full-time students under age 25, who had no New York income tax liability in their previous taxable year and expect none in the current year.
- Military spouses are exempt from New York State income tax under the service members Civil Relief Act and Veterans Benefits and Transition Act.
- If your business is a participant in the START-UP NY program and operates in a tax-free area, some or all of your employees’ wages may be exempt from New York State, NYC, and Yonkers income tax withholdings.
New York Labor Laws & other HR Requirements
In addition to payroll taxes, there are several New York labor laws and HR laws that affect payroll in the state of New York. Drill down to see exactly which labor laws and payroll policies your small business has to comply with.
How To Calculate & Process New York Payroll
Now that we’ve covered the bases for New York State taxes and regulations, let’s dig into the nitty-gritty of how payroll works for small businesses in the Empire State.
Step 1: Make Sure You’re Following All New York Payroll Laws
Double-checking that you are adhering to the laws and regulations mentioned above should be your first step. Otherwise, you and your business could be liable for penalties, fees, and criminal charges, such as:
- Penalties up to $50,000 if convicted for not providing worker’s compensation insurance
- $1,000-3,000 fines for violating child labor laws
Step 2: Have the Proper Employee Documentation
After you’re sure you’re satisfying New York State law, it’s time to get all your employee paperwork and documentation in order.
New York Payroll Forms
- I-9: This form is used to verify an employee’s identity and eligibility to work in the United States.
- W2: This form is a wage and tax statement that employers must send to employees and the IRS at the end of the year.
- W4: New employees need to complete and return this form to ensure their first paycheck is accurate.
Step 3: Calculate Your Employee’s Pay
For small businesses with just one or two employees, calculating employee wages may not be too much work. Remember to factor in tips, commission, and paid time off — in addition to salary or hours worked — for an accurate total.
If you have many employees or just want some assistance with arithmetic, there are several options for small business payroll software to consider.
Step 4: Deduct Federal & State Payroll Taxes
Next, you’ll need to deduct both federal and state payroll taxes. It’s a sizable list, so let’s recap quickly.
Federal Payroll Taxes
- Federal Income Tax: Information on the W4 form will dictate withholdings.
- Federal Unemployment Tax: Rate of 6% on the first $7,000 in wages
- Social Security: Flat rate of 6.2% for wages up to $142,800 in 2021.
- Medicare: Flat tax of 1.45%, employees earning more than $200,000 receive an additional 0.9%, and a flat rate of 2.9% for self-employed persons.
New York Payroll Taxes
- State Income Tax: Ranges from 4-8.82% according to an employee’s income. Additional commission or bonuses are withheld at a rate of 9.62%
- Unemployment Insurance: New York State payroll tax rates for UI range from 2.025% to 9.826%
- Disability Insurance: Employers may take out 0.5% of an employee’s wages from their paycheck, for a max of $60.
Step 5: Process Payroll
After taking out deductions and withholdings, you will pay your employees their net earnings. As a small business, it may be advantageous to save money by writing checks manually, though payroll software can save precious time and reduce human error.
Step 6: Don’t Forget To Keep Records
Paying your employees is not the final step. It’s critical to maintain accurate payroll records to submit to the IRS and New York State. Issuing pay stubs to employees is one method, and it’s legally obligated. It’s also a good idea to store information electronically on a hard drive.
Filing electronically is mandatory for New York State, or else you’ll be subject to penalties and potential delays. This will require an NYS-45 form to be filed quarterly. This includes combined withholdings, wage reporting, and unemployment insurance returns.
New York Sate Payroll Tax & Business Resources
There are a lot of boxes to check to complete New York State payroll and file taxes successfully. Fortunately, putting in the work to create a system that fits your needs will set your small business up for years to come.
Make keeping track of payroll taxes even easier by using one of these top-rated payroll software options for small businesses.
For more help with your New York business, check out our top New York business loans to help your business get the funding it needs.