Types Of Payroll Taxes

2/27/2026

When determining the taxation of wages for an employee on the state level and the requirements for the employer concerning withholding, depositing, and reporting of such taxes, the following areas should be addressed:

• Income Tax 41 states require state income tax (SIT) to be withheld from employees' wages. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming do not have state income tax. The federal Form W-4 (discussed in another Lesson) is used to assist in computing the amount of tax to be withheld for FIT. It is important for the payroll professional to make sure that the equivalent proper form is used for the state. Some states accept the federal Form W-4 for state purposes, and some accept only their own form. Still other states will allow the federal form to be used if the employee is claiming the same number of allowances and marital status for both federal and state. Some states have a flat percentage of taxable wages for SIT; in this case, no state form is required. A state may also have rates for supplemental wages that employers must use.
• Local Income Tax or Taxes There are thousands of local taxing authorities that may require withholding or payment of taxes on an employee's wages. These can include cities such as Newark or New York or counties, school districts, and townships. They may include items such as a privilege tax where the employee pays an amount for the privilege of working in that entity. The employer must verify which taxes must be withheld from the employee's wages and paid.
• Disability Insurance There are six taxing jurisdictions that require the employer to either deduct for or provide state disability insurance (SDI) through the state program for employees. The cost is usually deducted directly from the employee's wages until a certain wage base is reached. The amount can be based on either a percentage amount or a fixed or flat rate. The program provides for wage replacement benefits to employees who become ill or injured off the job. California, Hawaii, New Jersey, New York and Rhode Island are the states that require SDI. In addition, disability insurance is required for the Commonwealth of Puerto Rico.
• Unemployment Insurance All states require the employer to pay a certain percentage of the employee's wages to the state for state unemployment insurance (SUI). The percentage is normally based on the employer's hire/fire history and amount of claims filed with the state. There are only three states that have a SUI requirement on the employee's side as well. These currently are Alaska, New Jersey, and Pennsylvania. Don't get caught in non-compliance! Become a Certified Payroll Administrator to get the training you need!