Payroll Taxes by State: An Employer Guide
What employers owe state by state: unemployment insurance, income tax withholding, local taxes, and what changes when you hire across state lines.
Payroll Taxes by State
What you owe as an employer in each state, who pays what, and the local layer that catches remote teams
Most guides on this topic hand you a table of fifty states and leave you to work out which rows apply to you. That is the wrong shape for the actual problem, because the question an employer is asking is almost never what are the rates everywhere. It is what do I owe, in the states where I actually have people, and what did I miss.
The thing most commonly missed is not a rate. It is an entire layer. Federal taxes are identical everywhere and easy to get right. State taxes vary but at least arrive with a registration process that tells you what to do. Local taxes arrive with nothing at all, apply in roughly 5,000 jurisdictions across 16 states, and are triggered by a street address rather than by anything that shows up in your onboarding paperwork.
This guide is organized around what varies rather than around the alphabet. Three layers, who pays what, the three groups of states for income tax, how unemployment insurance really works, the local layer, and what changes the moment you hire someone in a new state. I build FirstHR for businesses with five to fifty employees, which is exactly the size where one remote hire creates an obligation nobody notices. This is general information rather than tax or legal advice, and rates change constantly, so verify against the state agency before acting.
The Three Layers of Payroll Tax
Every payroll tax an employer deals with sits in one of three layers, and knowing which layer you are looking at tells you how much it varies and who to ask about it.
The useful thing about this framing is that it tells you where to spend your attention. The federal layer is fixed and well documented, so getting it right is a matter of using current figures. The state layer varies but comes with a registration process that hands you your obligations. The local layer has no such process, which is why it is the one that goes unnoticed for years.
What Is the Same Everywhere
Before the state variation, the constant. These figures apply identically whether your employee is in Texas or Vermont, and they represent the majority of most employers' payroll tax burden.
| Tax | Rate | 2026 wage base | Who pays |
|---|---|---|---|
| Social Security | 6.2 percent each side | $184,500 | Employer and employee, matched |
| Medicare | 1.45 percent each side | No cap | Employer and employee, matched |
| Additional Medicare | 0.9 percent | Wages above $200,000 | Employee only, no employer match |
| FUTA | 6.0 percent, effectively 0.6 percent after the standard credit | First $7,000 per employee | Employer only |
| Federal income tax | Per the employee's Form W-4 | No cap | Withheld from the employee |
Per the Social Security Administration, the contribution and benefit base rose to $184,500 for 2026, up from $176,100, which puts the maximum Social Security tax at $11,439 from each side for an employee at or above the cap. The FUTA wage base, by contrast, has sat at $7,000 since 1983, which means the effective FUTA liability for most employees is finished within the first few months of the year.
Two federal quirks worth carrying into the state discussion. The additional Medicare tax breaks the matching pattern: it is withheld from the employee above $200,000 and the employer does not match it. And the FUTA credit depends on your state behavior: the 5.4 percent credit that reduces FUTA from 6.0 to 0.6 percent is earned by paying your state unemployment taxes in full and on time, and states with outstanding federal loans see the credit reduced. The mechanics of each are in the FICA tax guide and the payroll tax guide.
What Actually Varies by State
Four things change when you cross a state line, and it is worth being precise about them because they change in different ways.
| What varies | How much | Where to find it |
|---|---|---|
| Whether there is income tax withholding at all | 41 states plus DC have it; 9 do not | Tax Foundation, or the state revenue department |
| Unemployment insurance rate | Assigned to your business individually, based on your claims history | Your annual rate notice from the state agency |
| Unemployment taxable wage base | Ranges from $7,000 to tens of thousands, adjusted annually | State agency, or the PayrollOrg wage base chart |
| Disability and paid leave programs | A minority of states, some employer-funded, some employee-funded, some split | State agency |
| Local income taxes | 16 states permit them; roughly 5,055 jurisdictions levy them | Municipal or county tax authority for the specific address |
Notice that only one of those five is a number you can look up in a table and apply. Your SUTA rate is specific to your business, not to your state, which is why every all-fifty-states rate table you find shows a range rather than a figure. The number that applies to you arrives in a notice from the state agency, usually once a year.
Employer Taxes vs Employee Withholding
This distinction determines what actually costs you money, and it is muddled in most state-by-state guides because they present everything in a single column.
The line worth internalizing: withholding is not the same as paying, but it carries the same responsibility. Money withheld from an employee for income tax never was yours and is not an expense to you, but you are the one who has to withhold the right amount, remit it on the right schedule, and file the right returns. Getting it wrong is your liability, not theirs.
On your books these two categories are recorded very differently, which is where the distinction becomes concrete. The employer taxes are an expense; the withholdings are a liability you are holding on someone else's behalf. The payroll journal entry guide works through exactly how that gets recorded.
State Income Tax: Three Groups
For withholding purposes, every state falls into one of three groups, and the group determines how much work the withholding calculation is.
The other 41 states plus DC split into two structural types. Per Tax Foundation data for 2026, 15 states use a single-rate or flat structure, applying one percentage regardless of income, while 26 states plus DC use graduated brackets where the rate rises with income. Several states cut rates effective January 1, 2026, and the multi-year trend has been toward flatter structures.
For payroll purposes the structural distinction matters less than it sounds. You do not calculate brackets yourself: you follow the state's withholding tables or formula and the state's own withholding certificate, which is frequently a different form from the federal Form W-4. The practical difference between a flat state and a graduated state, from your side, is mostly how sensitive the withholding is to a pay change. The mechanics of federal withholding, which the state versions broadly parallel, are in the federal withholding guide.
State Unemployment Insurance: The One You Cannot Look Up
SUTA is the state tax that costs employers the most and confuses them the most, because unlike every other payroll tax it does not have a published rate that applies to you.
Three variables determine what you pay. The state rate range, set by each state and often spanning from near zero to over 10 percent. The taxable wage base, also state-set, ranging from the federal floor of $7,000 up to tens of thousands of dollars. And your experience rating, which is your own history of unemployment claims and which moves you within the state range.
Two operational points follow. Your rate changes annually, and the notice arrives late in the year or early in the next, so a rate you used last January is probably wrong this January. And layoffs raise it, with a lag, which is a real if rarely mentioned cost of workforce reductions. The full mechanics are in the SUTA guide and the state unemployment tax guide.
The Three States Where Employees Pay Unemployment Too
In 47 states, unemployment insurance is funded entirely by employers and nothing comes out of employee wages for it. In three, it does not work that way.
| State | Employee contribution | What else employees fund |
|---|---|---|
| Alaska | A percentage of wages up to the state wage base, withheld by the employer and held in trust | Nothing beyond the unemployment contribution |
| New Jersey | A percentage of wages up to the state wage base | Separate state disability insurance and family leave insurance, each its own line on the pay stub |
| Pennsylvania | A small percentage of wages, with no wage base cap on the employee side | Local earned income tax under Act 32 in most municipalities |
New Jersey deserves particular attention because employees there see three or four separate state deductions rather than one, and each has its own rate and wage base. If you are setting up payroll in New Jersey for the first time and configure only unemployment, the disability and family leave withholdings are missing and you will owe them.
The wider point is that employee-side state deductions are not limited to these three. A growing number of states fund disability or paid family leave programs partly or wholly through employee contributions, without touching unemployment insurance. Those programs are a separate question from SUI and should be checked separately for every state where you have people.
Local Payroll Taxes: The Layer Nobody Warns You About
This is the section that justifies the article, because local tax is where a compliant-looking small business is most often quietly non-compliant.
Per Tax Foundation research, local income taxes are imposed by roughly 5,055 jurisdictions across 16 states, counting counties, cities, school districts, and special taxing districts. The concentration is extreme: Ohio and Pennsylvania account for the large majority of them.
| State | What is levied locally | What makes it hard |
|---|---|---|
| Ohio | Municipal income taxes plus school district income taxes | Hundreds of municipalities and school districts; one address can sit in several overlapping jurisdictions at once |
| Pennsylvania | Earned income tax and local services tax across thousands of municipalities and school districts | Act 32 requires two PSD codes per employee, residence and work, with withholding at the higher rate |
| Indiana | County income tax in every county | Determined by county of residence as of a set date each year |
| Maryland | County income tax in all 23 counties plus Baltimore City | Rates vary by county and are withheld alongside state tax |
| Kentucky | Occupational license taxes levied by cities and counties | Levied under varying local names and administered separately |
| New York | New York City and Yonkers income taxes, plus a metropolitan commuter transportation mobility tax | The transportation tax is an employer tax with its own payroll thresholds |
One sourcing note worth flagging, because you will encounter both numbers. The Tax Foundation figure of roughly 5,055 counts jurisdictions levying income taxes specifically. Payroll technology vendors sometimes cite a higher number around 7,400, which counts all local taxing jurisdiction types including things that are not income taxes. Both are defensible; they answer different questions, and quoting one as the other is a common error.
Hiring Across State Lines
One remote hire in a new state changes your obligations in that state immediately, and the trigger is easy to miss because nothing about the hire feels like a tax event.
The first point is the one that catches small businesses hardest, and it mirrors what happens with state retirement mandates: obligations follow the employee's work location rather than your state of incorporation. A company registered in Florida with employees in three other states has payroll tax obligations in four jurisdictions, not one.
Reciprocity deserves a specific caution because it is routinely misunderstood. Where two neighboring states have an agreement, an employee living in one and working in the other can generally elect withholding for their home state instead of their work state, using a form specific to that agreement. It changes income tax withholding only. It never changes which state you owe unemployment insurance to, and assuming otherwise creates an unregistered obligation. If you are building a distributed team, the remote hiring guide covers the wider set of obligations that travel with the employee.
What Triggers at What Headcount
Some obligations attach with your first employee and some wait for a threshold. Knowing which is which lets you anticipate rather than react, which matters because thresholds arrive with growth rather than with a notice.
The pattern worth extracting: payroll tax obligations mostly attach at one employee, while employment law obligations mostly attach at thresholds. Registration for unemployment insurance and income tax withholding is not something you grow into. It applies from the first person you hire in a state, which is why the very first hire in a new state is the moment to check rather than the fifth. The thresholds that change your legal obligations as you grow are covered in the human resource laws guide.
Registering in a New State
The sequence when you hire your first employee in a state you have not operated in before.
Keeping Rates Current
Payroll tax figures decay on a predictable schedule, which makes maintenance a calendar task rather than a research project.
Every January, three things change at once: the Social Security wage base, your state unemployment rates and wage bases, and any state income tax rate changes effective January 1. This is the single most important maintenance moment of the year, and running a January payroll on last year's figures produces errors across every employee.
Your SUTA rate notice arrives separately from all of that, usually late in the prior year, and applies only to you. It is easy to file and forget rather than actually entering into payroll.
Local rates can change mid-year in some jurisdictions, which is the one item with no reliable annual rhythm. In practice this is a reason to rely on a payroll system that maintains local tables rather than tracking them manually.
For authoritative starting points: the Department of Labor list of state unemployment tax agencies gives you the right contact for every state, and the IRS employment taxes overview covers the federal layer. Neither replaces your own state agency for the figures that apply to you specifically, and the broader compliance picture is in the payroll compliance guide.
Quick Self-Check
Six questions. Any uncertain answer points at a registration or a rate worth confirming this week.
None of this requires a payroll specialist. It requires a list of states, two registrations per state, and one January maintenance pass. Where this fits into the mechanics of actually running payroll is in the running payroll guide, and what goes wrong most often is in the common payroll mistakes guide.
Frequently Asked Questions
What payroll taxes does an employer pay by state?
Every employer pays the same federal taxes regardless of state: 6.2 percent Social Security up to the annual wage base, 1.45 percent Medicare with no cap, and federal unemployment tax at an effective 0.6 percent on the first $7,000 per employee for most employers. What varies by state is state unemployment insurance, which is employer-paid everywhere at a rate assigned to your business individually, plus state disability and paid leave programs in a growing number of states. State income tax is withheld from employees rather than paid by you, but you are responsible for withholding and remitting it correctly.
Which states have no payroll tax?
No state is free of payroll tax obligations. Nine states levy no broad-based individual income tax, meaning no state income tax withholding: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. But every one of those states still requires you to register for and pay state unemployment insurance, and Washington adds paid family and medical leave plus a long-term care program. The absence of an income tax simplifies withholding; it does not remove the employer tax burden.
How many states have a state income tax?
Forty-one states plus the District of Columbia levy a broad-based individual income tax, according to Tax Foundation data for 2026. Of those, fifteen use a single-rate or flat structure, while twenty-six states plus DC use graduated brackets where the rate rises with income. The trend in recent years has been toward flatter structures, with several states converting from graduated brackets to a single rate. For withholding purposes the structural difference matters less than the state's own withholding tables, which you follow either way.
What is SUTA and how much is it by state?
SUTA, also called SUI or state unemployment insurance, is an employer-paid tax that funds unemployment benefits. There is no single national rate: each state sets its own rate range and taxable wage base, and within that range your specific rate depends on your experience rating, meaning your history of unemployment claims. New employers usually receive a standard starting rate until they build enough history for an experience rating. Wage bases vary enormously, from the federal floor of $7,000 in some states to tens of thousands of dollars in others, and they are adjusted annually.
Which states have employee-paid unemployment insurance?
Three: Alaska, New Jersey, and Pennsylvania. In every other state, unemployment insurance is funded entirely by employers and nothing is withheld from employee wages for it. In these three, you must withhold an additional employee contribution at the state's specified rate. New Jersey is the most complex of the three because employees there also contribute to separate state disability and family leave insurance programs, each appearing as its own line on the pay stub.
What are local payroll taxes and which states have them?
Local payroll taxes are income or wage taxes levied by municipalities, counties, school districts, or special districts, on top of federal and state taxes. Per Tax Foundation research, they are imposed by roughly 5,055 jurisdictions across 16 states, heavily concentrated in Ohio and Pennsylvania. Every county in Indiana and Maryland levies one. Others appear in Kentucky, Michigan, Missouri, New York, Ohio, Oregon, and elsewhere under names like occupational tax or privilege tax. Note that vendor sources sometimes cite a higher figure of around 7,400, which counts all local taxing jurisdiction types rather than income taxes specifically.
Do I pay payroll taxes where my business is located or where the employee works?
Generally where the employee works, not where your business is registered or headquartered. A company incorporated in a state with no income tax that hires a remote employee in a state with one will normally need to register with that state's revenue department for withholding and with its unemployment agency for SUTA. This catches remote-first small businesses constantly, because the obligation arrives with a single hire and nothing about the hiring process flags it.
What happens if I do not register in a state where I have an employee?
Penalties and interest typically accrue from the date the obligation began rather than the date you discovered it, which means the cost grows quietly the longer it goes unnoticed. You may also owe back unemployment contributions and unremitted withholding. States increasingly cross-reference data sources to identify unregistered employers. If you find you have missed a registration, register and disclose promptly rather than waiting, since most states treat voluntary correction more favorably than discovery through an audit.
How often do state payroll tax rates change?
State unemployment wage bases and rate schedules are typically updated annually, with new employer rate notices arriving late in the calendar year or early in the new one. State income tax rates change less predictably, driven by legislation, and several states implemented rate reductions effective January 1, 2026. Local rates can change mid-year in some jurisdictions. The practical implication is that any payroll tax reference more than a year old should be treated as a starting point rather than an authority, including this one.
Do I need to withhold state income tax if my employee lives in a different state than they work?
It depends on whether the two states have a reciprocity agreement. Where one exists, the employee can generally elect to have tax withheld for their home state rather than their work state, using a form specific to that agreement. Where no agreement exists, you usually withhold for the work state, and the employee resolves any double taxation through a credit on their home state return. Reciprocity applies to income tax withholding only and never changes which state you owe unemployment insurance to.