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What are State Payroll Taxes?

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  • Written By: Angela Johnson
  • Edited By: Amanda L. Wardle
  • Last Modified Date: 25 May 2020
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State payroll taxes can refer to two different types of taxes. These taxes include taxes an employer withholds from an employee's pay, and the taxes the employer is required to pay for employing a person. Payroll taxes can be paid towards retirement funds, health care management, unemployment insurance, and sometimes local government tax funds spent on local public systems. Different states impose taxes for some or all of these funds.

State payroll taxes imposed on employers may be based on a percentage of employee salaries, while others are based on a fixed rate. This amount is dependent upon the tax laws in a particular state. Typically, the rate of tax paid by an employee is based on the salary of the employee, either as a percentage of their pay or as a fixed rate imposed on a sliding scale.

Many states require payroll taxes for the purpose of contributing to a state retirement fund. Such a fund ensures that citizens in the state will receive a retirement salary. Taxes for these funds are generally paid by employees as a percentage of their salary. The employer is typically required to match this amount.

State health care systems are funded by state payroll taxes. Funds for these systems are often available to individuals who have reached a retirement age, those who require state assistance as a result of a disability, and those whose income meets or falls below a certain level, usually poverty level. Some state health systems offer the minimum of care, such as insurance for hospitalization only, while others offer a greater variety of services.

Some states impose a payroll tax for workers who become unemployed. This is commonly called unemployment insurance. These funds provide a base level of pay for a certain period of time to workers who have lost jobs, generally calculated as a percentage of the worker's previous pay rate. Regulations limit the amount of time unemployment insurance is available to workers; it is generally considered temporary assistance that gives adequate time for a new job to be found.

Local state payroll taxes typically fund transportation and roads for local areas. These taxes are generally intended for improving local infrastructures, including street, highway, and sidewalk repairs. These funds may also be allotted to parks and for general improvements.

State payroll taxes are generally required. Penalties can be imposed if the taxes are not paid in a timely manner. Penalty rates vary according to state.

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