How to Do Payroll in New York

Setting up payroll in New York can feel overwhelming, especially with all the different taxes and regulations you need to follow. But don’t worry, I’ve got you covered.

Understanding the various payroll taxes in New York is the first step. This guide will help you navigate state income tax, unemployment insurance tax, and other payroll taxes like disability insurance and workers’ compensation. By the end of this section, you’ll know exactly what taxes you need to handle and how to manage them efficiently.

Payroll taxes in New York

Let’s face it, the thought of navigating New York’s complex payroll tax system is enough to make anyone’s head spin. But it’s crucial to get it right to avoid any costly penalties and keep your business running smoothly.

State income tax

New York state income tax rates vary based on income levels. The state uses a progressive tax system, which means the tax rate increases as the taxable income increases. For example, in 2024, the rates range from 4% for lower-income brackets to 8.82% for higher-income brackets. You need to check the latest tax tables to ensure accurate withholding.

Everyone who earns income in New York must pay state income tax. This includes residents and non-residents who work in the state. Make sure to withhold the correct amount from your employees’ paychecks and remit it to the New York State Department of Taxation and Finance.

Unemployment insurance tax

State unemployment tax rates in New York are experience-rated. This means the rate you pay depends on your company’s history of unemployment claims. In 2024, new employers generally start with a rate around 3.2% to 4.1%. Established employers can see rates ranging from 0.6% to 7.9%, depending on their experience rating.

The wage base limit for unemployment insurance in New York is $12,000. This means you only pay unemployment taxes on the first $12,000 of each employee’s earnings each year. Keep track of this to avoid overpaying.

Other payroll taxes

Disability insurance is another payroll tax you need to handle. New York requires employers to provide short-term disability insurance for employees who cannot work due to non-work-related injuries or illnesses. The cost of this insurance can be shared between you and your employees, but you must ensure coverage is in place.

Workers’ compensation is mandatory in New York for most employers. This insurance covers employees who get injured or sick because of their job. The rates for workers’ compensation vary based on the industry and the company’s claims history. You need to purchase this insurance from a private carrier or the New York State Insurance Fund.

Managing these taxes might seem like a lot, but staying organized and keeping accurate records will help you stay compliant.

Payroll registration requirements in New York

Getting all your ducks in a row before you start processing payroll is essential. Missing a step here can lead to headaches down the road.

Obtaining a federal Employer Identification Number (EIN)

First, you need to get a federal Employer Identification Number (EIN) from the IRS. This number identifies your business for tax purposes. You can apply for an EIN online through the IRS website, by mail, or by fax. The online application is the fastest method, usually providing an EIN immediately upon completion.

Registering with state agencies

Once you have your EIN, the next step is to register with New York state agencies. This involves two main departments:

• New York State Department of Taxation and Finance: You need to register for a New York State Employer Identification Number. This number is used for state income tax withholding and other payroll-related taxes. You can register online through the New York Business Express website.
• New York State Department of Labor: You must also register with the Department of Labor for unemployment insurance. This registration ensures you comply with state unemployment insurance requirements. The same online portal, New York Business Express, can be used for this registration.

New hire reporting

When you hire a new employee, you must report this to the state. New York requires you to report new hires within 20 days of their start date. This helps the state track employment and enforce child support orders.

The information you need to report includes the employee’s name, address, Social Security number, and the date they started working. You also need to provide your business’s name, address, and federal EIN. You can submit this information online through the New York New Hire Reporting website.

Staying on top of these reporting requirements is important to avoid penalties and ensure compliance with state regulations.

Calculating and withholding payroll taxes

Ensuring you withhold the right amount of taxes is crucial not just for compliance, but also for maintaining employee trust and satisfaction.

Determining employee tax withholdings

When setting up payroll in New York, you need to determine the correct tax withholdings for each employee. This involves federal, state, and possibly local income taxes.

Federal income tax: Use the IRS Form W-4 that each employee completes to calculate the amount of federal income tax to withhold from their paycheck. The W-4 form provides information on the employee’s filing status, number of dependents, and any additional amounts they want withheld. You can use the IRS tax tables or an online payroll calculator to determine the exact withholding amount.

State income tax: New York state income tax is also withheld from employee paychecks. The amount depends on the employee’s income level and filing status. Use the New York State Form IT-2104, which employees fill out, to determine the correct withholding amount. Refer to the New York State tax tables to find the appropriate rates and ensure accurate withholding.

Local income taxes (if applicable): Some localities in New York, like New York City and Yonkers, have additional income taxes. Check if your employees live or work in such areas and use the relevant local tax tables to calculate the correct withholding amounts. Ensure you stay updated on any changes to local tax rates.

Calculating employer payroll taxes

Employers are responsible for several payroll taxes, including FICA, FUTA, and state unemployment insurance.

FICA (Social Security and Medicare): The Federal Insurance Contributions Act (FICA) tax includes Social Security and Medicare taxes. For 2024, the Social Security tax rate is 6.2% on wages up to $160,200, and the Medicare tax rate is 1.45% on all wages. Employers match these contributions, meaning you pay the same amount as your employees. For high earners, an additional Medicare tax of 0.9% applies to wages over $200,000, but only employees pay this extra amount.

FUTA (Federal Unemployment Tax Act): FUTA provides funds for paying unemployment compensation to workers who have lost their jobs. The FUTA tax rate is 6% on the first $7,000 of each employee’s wages. However, you can claim a tax credit of up to 5.4% if you pay state unemployment taxes on time, reducing the effective FUTA tax rate to 0.6%.

State unemployment insurance: New York requires employers to pay state unemployment insurance (SUI) taxes. The rates vary based on your company’s experience rating, ranging from 0.6% to 7.9% for 2024. New employers typically start with a rate between 3.2% and 4.1%. The wage base limit for SUI is $12,000, meaning you only pay SUI taxes on the first $12,000 of each employee’s wages each year. Regularly check your rate and ensure timely payments to avoid penalties.

Understanding these payroll taxes and accurately calculating withholdings ensures compliance and smooth payroll operations.

Paying and reporting payroll taxes in New York

Missing a payment or filing deadline can lead to hefty penalties, so it’s critical to stay on schedule.

Payment schedules

Federal tax deposits and state tax deposits follow specific schedules to ensure timely payments and compliance.

Federal tax deposits: You need to deposit federal payroll taxes based on your deposit schedule, which can be monthly or semi-weekly. The IRS determines your deposit schedule based on your total tax liability during a lookback period. If you reported $50,000 or less in taxes during the lookback period, you deposit monthly. If you reported more than $50,000, you deposit semi-weekly. Make deposits through the Electronic Federal Tax Payment System (EFTPS) to avoid penalties.

State tax deposits: New York requires state tax deposits on a different schedule. If your total withholding is less than $700 per quarter, you can deposit quarterly. If it’s $700 or more, you need to deposit within three or five business days, depending on the amount. Use the New York State Department of Taxation and Finance’s online services to make these deposits.

Filing payroll tax returns

Filing payroll tax returns involves submitting various forms to both federal and state agencies.

Federal tax returns: You need to file Form 941, the Employer’s Quarterly Federal Tax Return, to report income taxes, Social Security tax, and Medicare tax withheld from employees’ paychecks. This form is due at the end of the month following each quarter. For example, the return for the first quarter (January to March) is due by April 30. Additionally, file Form 940, the Employer’s Annual Federal Unemployment (FUTA) Tax Return, to report FUTA taxes. This form is due by January 31 of the following year.

State tax returns: In New York, you need to file Form NYS-45, Quarterly Combined Withholding, Wage Reporting, and Unemployment Insurance Return. This form reports state income tax withholding and unemployment insurance contributions. It’s due at the end of the month following each quarter. For example, the return for the first quarter is due by April 30. Additionally, you may need to file Form NYS-1, Return of Tax Withheld, if you are required to make accelerated payments. This form is used to report and remit withholding tax payments and is due within three or five business days, depending on your deposit schedule.

Staying on top of these payment schedules and filing requirements ensures compliance and avoids penalties.

Recordkeeping and compliance

Trying to keep track of everything can feel like juggling flaming torches, but it’s absolutely essential for avoiding audits and penalties.

Maintaining accurate payroll records is a must for any business operating in New York. You need to keep detailed records of employee information, hours worked, wages paid, and tax withholdings. These records should be kept for at least six years to comply with state regulations. Accurate records help you track payroll expenses, resolve disputes, and prepare for audits.

Providing pay stubs to employees is another requirement. In New York, you must give employees a detailed pay stub each pay period. This stub should include the employee’s name, pay rate, hours worked, gross wages, deductions, and net pay. Pay stubs ensure transparency and help employees understand their earnings and deductions.

Responding to wage garnishments is part of payroll compliance. If you receive a garnishment order, you must withhold a portion of the employee’s wages and remit it to the appropriate agency. You need to follow the specific instructions in the garnishment order and ensure timely payments to avoid legal issues.

Staying updated on payroll tax changes is vital. Tax laws and rates can change, impacting how you calculate and withhold taxes. Regularly check for updates from federal, state, and local tax authorities. Staying informed helps you avoid penalties and ensures compliance with the latest regulations.

5 tips for streamlining payroll in New York

Let’s talk about making your life a bit easier. Streamlining your payroll process can save you time, money, and a lot of stress.

Tip 1: Use payroll software

Using payroll software simplifies the entire payroll process. It automates calculations, tax withholdings, and payments, reducing the risk of errors. Payroll software also helps you stay compliant with federal and state regulations by updating tax rates automatically. Many payroll software solutions offer features like direct deposit, employee self-service portals, and integration with accounting software. These features save time and ensure accuracy, making payroll management much easier.

Tip 2: Stay organized and keep accurate records

Keeping accurate records is vital for smooth payroll operations. Maintain detailed records of employee information, hours worked, wages paid, and tax withholdings. Organize these records in a way that makes them easy to access and review. Use digital tools to store and manage records securely. Regularly update records to reflect any changes in employee status, pay rates, or tax information. Accurate records help you track payroll expenses, resolve disputes, and prepare for audits.

Tip 3: Classify workers correctly

Correctly classifying workers as either employees or independent contractors is important for compliance. Misclassification can lead to penalties and back taxes. Employees are subject to tax withholdings and benefits, while independent contractors handle their own taxes. Review the IRS guidelines and New York state regulations to determine the correct classification for each worker. Ensure that your payroll system reflects these classifications accurately to avoid compliance issues.

Tip 4: Stay current on tax laws and regulations

Tax laws and regulations change frequently. Staying updated on these changes helps you remain compliant and avoid penalties. Regularly check for updates from the IRS and New York state tax authorities. Subscribe to newsletters or alerts from reliable sources to receive timely information. Implement any changes in your payroll system promptly to ensure accurate tax withholdings and payments. Staying informed about tax laws and regulations is key to maintaining smooth payroll operations.

Tip 5: Consider outsourcing payroll

Outsourcing payroll can save time and reduce the administrative burden on your business. Payroll service providers handle calculations, tax withholdings, payments, and compliance, allowing you to focus on other aspects of your business. When choosing a payroll service provider, look for one that offers comprehensive services, including tax filing, direct deposit, and employee self-service portals. Evaluate the provider’s reputation, customer support, and pricing to ensure they meet your needs. Outsourcing payroll can streamline your operations and provide peace of mind.

Is outsourcing payroll in New York worth it?

The idea of handing over your payroll responsibilities to someone else might seem daunting, but it can be a game-changer for your business.

Outsourcing payroll in New York offers several benefits. First, it saves time. Managing payroll involves many tasks, such as calculating wages, withholding taxes, and filing returns. A payroll service provider handles these tasks, freeing up your time to focus on other aspects of your business. Second, it reduces errors. Payroll providers use advanced software to ensure accuracy in calculations and compliance with tax laws. This minimizes the risk of costly mistakes. Third, it ensures compliance. Payroll providers stay updated on tax laws and regulations, helping you avoid penalties.

When deciding to outsource payroll, consider a few factors. Assess the size of your business and the complexity of your payroll. If you have many employees or complex payroll needs, outsourcing can be more beneficial. Evaluate your budget. While outsourcing has costs, it can save money in the long run by reducing errors and penalties. Consider the level of control you want. Outsourcing means you’ll rely on a third party for payroll tasks, so ensure you’re comfortable with this arrangement.

Choosing a payroll service provider requires careful consideration. Look for a provider with a good reputation and positive reviews. Check their experience in handling payroll for businesses similar to yours. Ensure they offer the services you need, such as tax filing, direct deposit, and employee self-service portals. Evaluate their customer support. You want a provider that offers responsive and helpful support. Finally, compare pricing to ensure it fits your budget.

TL;DR

• What: Setting up payroll in New York is complex with various taxes and regulations.
• So What: Proper management is crucial to avoid penalties.
• Pros & Cons: Pros: Compliance, fewer errors. Cons: Complexity, time-consuming.
• Bottom Line: Use software or outsource to simplify and stay compliant.

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