Massachusetts Payroll Taxes: What Small Business Owners Should Know

Massachusetts Payroll Taxes: What Small Business Owners Should Know

June 13, 2022By admin

Payroll was considered an essential-worker service during the height of the COVID-19 pandemic. Considering the circumstances, this was understandable. Working people need to get paid, especially during difficult economic times. However, the government needs to get paid, too and that’s where payroll taxes come in. 

What are Payroll Taxes?

Payroll taxes are expenses withheld from employees by their employer and paid to the government by the employer on behalf of the employee. The tax is based on the employee’s gross income and used to finance Social Security along with Medicare benefits.

State of Massachusetts Payroll Taxes

Massachusetts has several specific tax laws related to payroll. Both the employer and employee must pay 7.65% in FICA (Social Security and Medicare) taxes. In the state of Massachusetts, an employer must also pay for unemployment insurance and workers’ compensation insurance. Failure to make these payments accurately and promptly can lead to costly fines for your business.

Details Small Business Owners Should Know

As a small business owner, your profit margins are critical to success and growth. However, in Massachusetts, you must pay an unemployment insurance tax rate of 2.42% for your first three years in business. Your rate will be adjusted based on the reserve ratio principle before you’ll owe the state anywhere between 0.56% and 18.55%.

Also, in the state of Massachusetts, you’ll be required to pay for worker’s compensation insurance at an approximate rate of $0.73 for every $100 of payroll you process. You must carry this insurance even if you’re the sole employee of the company. You’ll only be exempt from this if you’re a domestic worker that works fewer than 16 hours per week. 

Failure to carry worker’s compensation insurance can cost as much as $100 per day in fines and could even shut down your business. Thus, it’s critical that you pay the appropriate amount consistently on time. 

Benefits of Using a Payroll Company

Owning a small business is a great way to make a living. You can have personal relationships with repeat customers while doing work of your choosing and limiting overhead costs. Hiring a local payroll company saves you time and money, and allows you to focus on your business. 

According to Smart Service, the IRS estimates that nearly 40% of small to medium-sized businesses pay a monetary penalty for improper or inaccurate tax filing. The average penalty is $845 per year. For a small business, that can be a  considerable amount of money.

Don’t let payroll paperwork bog you down – work with Brabo Payroll! We offer payroll service solutions so you can spend more time doing the work you love. We’re a local payroll company for small businesses that can help elevate your company and streamline payroll processes.

Contact us to learn more about our mass payroll services!