Handling payroll taxes is often a confusing task for many business owners. If you’re running a business in Maine, understanding the specifics of Maine payroll taxes is crucial to keeping things running smoothly. By reading this article, you’ll learn the basics of Maine payroll taxes, including the different types of taxes, how to calculate them, and the deadlines for filing. At Paper Trails, we work to help small businesses overcome the obstacles of payroll, HR, and small business management. Let’s get started.
Understanding Federal Payroll Tax Rules
Before we get into Maine specific payroll taxes, let’s take a look at federal payroll tax responsibilities of employers. As a business owner with employees, you will be responsible for two things when it comes to payroll taxes:
- deducting a portion of your employees pay to pay the tax liability on their behalf. This includes:
- federal (and state income tax) based on your employees W4 form.
- the employee portion of social security and Medicare taxes.
- paying the company share of payroll taxes on each employee. This includes:
- social security and Medicare taxes.
- federal (and state) unemployment taxes.
Overall, most small businesses pay an average of 10% of employee wages in required payroll taxes on top of the wages they pay to employees.
Social Security & Medicare Taxes
The Federal Insurance Contribution Act, or FICA, began in the 1930s and is a law that states employees and their employers must make contributions to Social Security and Medicare programs. This Social Security & Medicare Tax is shared by an even 50/50 split between the employer and the employee. The current total rate for this tax is 15.3% of employee wages. The social security portion is currently 12.4%. Employees and employers each contribute 6.2% of wages to social security tax. The current Medicare portion of this tax is 2.9%. Employee and employers each contribute 1.45% of wages to Medicare tax.
Federal Unemployment Tax
Federal Unemployment Tax Act (FUTA), is a payroll tax that each business must contribute to. This tax covers a portion of unemployment benefits at the federal level. The withholdings from FUTA are used to help assist states in providing unemployment benefits to those employees who have been terminated for most reasons. The current FUTA rate for all businesses is 6% on only the first $7,000 of wages paid to employees in a calendar year. However, since most businesses contribute to state unemployment insurance, most businesses may receive a credit for their SUTA contributions of 5.4% towards FUTA, resulting in only a 0.6% tax. Employers in all but a few states may take the 5.4% credit towards FUTA.
Navigating Maine Payroll Taxes
Now that we have covered the federal payroll tax requirements of employers, let’s focus on Maine’s payroll taxes. In Maine, payroll taxes are currently divided into two main categories: state income tax and state unemployment insurance (SUI). Starting in 2025, there will be taxes withheld for Paid Family Medical Leave as well.
What is Maine State Income Tax?
Alongside your federal income tax duties, you must also withhold state income tax from your employees’ paychecks. State income tax is a tax that employees in Maine pay on their wages. The amount of tax depends on how much they earn—the more they earn, the higher the tax rate. The funds collected from this tax support state and local budgets, funding essential public services such as education, healthcare, roads, and parks.
How to Calculate State Income Tax
There are several methods to calculate the amount of state income tax to withhold from your employees’ paychecks:
- Percentage Method: This method uses a fixed percentage to calculate the tax.
- Wage Bracket Tables Method: This method involves looking up the tax amount in a table based on the employee’s wages.
- Flat-Amount or Fixed Percentage Rate Method: If an employee requests additional tax withholding, you can use this method.
Additional Details on State Income Tax
Maine’s income tax rates range from 5.8% to 7.15%. These rates are applied based on income brackets, which means employees with higher earnings will pay a higher percentage of their income in taxes. This system helps ensure that tax contributions are fair and proportional to each individual’s ability to pay. You can fid the 2024 Maine tax tables here.
Maine State Unemployment Insurance (SUI)
State unemployment insurance is a program that provides temporary financial assistance to workers who lose their jobs through no fault of their own. Employers in Maine are required to pay unemployment insurance taxes, which fund this program.
How to Calculate Maine Unemployment Taxes
Employers in Maine must pay unemployment taxes on the first $12,000 of each employee’s gross wages each year. The tax rates for experienced employers range from 0.28% to 6.03%, while new employers have a set rate of 2.32%. For example, a new employer with a rate of 2.32%, will owe ($12,000 x .0232) $278.40 per year for each employee over $12,000 in wages.
Exemptions and Special Cases
Certain types of employment may be exempt from unemployment taxes. For example, some agricultural or aquaculture workers, domestic workers, and small family businesses may have different requirements. It’s important to check the Maine Department of Labor website for specific exemptions and rules.
Maine Paid Family Medical Leave (PFML)
Maine’s Paid Family and Medical Leave (PFML) program is designed to provide financial support to employees who need to take leave for family or medical reasons. The program will start collecting contributions on January 1, 2025, and eligible employees can begin submitting claims on January 1, 2026.
How to Calculate Maine PFML Taxes
The funding for the PFML program comes from mandatory payroll deductions and employer contributions. The tax rate for the program is set at 1.00%, which is split evenly between employers and employees. This means both parties share the cost of the program, making it a joint effort to support employee well-being. The rulemaking for this program is still taking place, so stay tuned for updates.
Maine Payroll Tax Deadlines
Staying on top of payroll tax deadlines is essential to avoid penalties. In Maine, the deadlines for paying state income tax withholding depend on how much tax you report.
Quarterly Payments:
If you reported less than $18,000 in income tax withholding for the 12 months ending June 30 of the previous calendar year, you must make quarterly returns. Employers owing taxes to the MRS on a quarterly basis must meet the following due dates:
- First quarter: Due April 30
- Second quarter: Due July 31
- Third quarter: Due October 31
- Fourth quarter: Due January 31
For unemployment insurance tax, Maine employers must complete and file each quarter according to the previous schedule.
Semiweekly Payments:
If you reported $18,000 or more for the 12-month lookback period, you must make payments semiweekly.
- For wages paid on Wednesday, Thursday, or Friday, payments are due by the following Wednesday.
- For wages paid on Saturday, Sunday, Monday, or Tuesday, payments are due by the following Friday.
Penalties for Late Payments
Late payments can result in a 7% interest charge for the entire month. Because of this interest charge, it’s crucial to keep track of these deadlines to avoid unnecessary costs.
How to Submit Payroll Taxes in Maine
Submitting payroll taxes in Maine involves several steps:
- Apply for an Employer ID Number (EIN): This is obtained from the IRS.
- Register with Maine Revenue Services: You can do this online.
- Collect Employee Payroll Forms: This includes forms like W-4, I-9, and W-4ME.
Important forms include:
- Form 941ME: Employer’s Return of Maine Income Tax Withholding (quarterly or semiweekly)
- Form W-3ME: Reconciliation of Maine Income Tax Withheld (annual)
You can submit your income taxes electronically via the Maine Tax Portal and your unemployment payments can be submitted on ReEmployME.com. Generally, your payroll vendor will submit these payments for you. At Paper Trails, we do submit all tax payments on time for all of our clients.
Conclusion
Navigating Maine payroll taxes doesn’t have to be overwhelming. By understanding the types of taxes, how to calculate them, and keeping up with deadlines, you can manage your payroll efficiently and avoid costly mistakes. At Paper Trails, we’re here to support small businesses through the complexities of payroll, HR, and small business management. We hope this guide helps you feel more informed and confident in handling your payroll taxes. Feel free to contact our team here for help with your payroll process and tax withholdings.