It’s no secret that business taxes can be complicated—but this is especially true if you’re a business owner or payroll manager in Indiana. Businesses in this state are responsible for properly withholding their employees’ federal income tax, paying unemployment taxes, and covering any required Social Security and Medicare taxes. And, of course, these withholdings need to be carefully tracked and reported for each employee.
Feeling overwhelmed by the upcoming tax season? By understanding the basics of payroll withholding compliance and employee withholdings in Indiana, you can be better prepared to confidently file your business taxes.
Understanding Indiana State Tax for Businesses
All Indiana businesses with employees are required to make payroll tax payments to the Indiana Department of Revenue. Specifically, there are two types of payroll tax that businesses must pay:
- Unemployment insurance tax – This is a tax paid by the employer and is contributed to Indiana’s state unemployment insurance. This tax is calculated based on a percentage determined by the Department of Workforce Development each year, but maxes out at just under $900 per employee per year. These taxes are paid by employers quarterly throughout each calendar year.
- Personal income tax – Employers are also responsible for withholding personal income tax (PIT) from employees’ paychecks. For 2023, the Indiana income tax rate is 3.15%—but employers may also need to calculate and withhold federal, county, and other local income taxes as well. Due dates for these tax payments can vary depending on the average amount of tax withheld each month.
Employers can make tax payments online after registering with the Indiana Department of Revenue. It is also possible to pay by mail via check.
The Importance of Indiana Payroll Tax Compliance
Following requirements for payroll tax and employee withholdings in Indiana is critical for businesses of all sizes. Not only can the Department of Revenue audit businesses to ensure tax compliance—but businesses found to be misreporting or failing to make timely payments could end up facing hefty fines and penalties.
According to the Indiana Department of Revenue, failure to pay a tax liability can result in a penalty of 10% of the unpaid tax liability, which can add up quickly. Likewise, failure to file a tax return can result in a 20% penalty—and a 100% penalty is charged for failure to file a tax return with fraudulent intent to evade.
Unfortunately, even well-meaning business owners and payroll specialists can make costly mistakes when it comes to the complicated withholding and payroll tax regulations in Indiana. The tax code in Indiana changes often, and staying up-to-date on the latest changes isn’t always easy. Combine this with other nuances (such as employees working in Indiana while living in another state) and it’s easy to see how errors occur.
Need Help With Payroll Taxes in Indiana?
Making sure that your business is withholding the proper amount (and making correct tax payments to the state) can be challenging, which is why many businesses turn to experienced payroll specialists for the expert guidance they need to stay in compliance and avoid penalties.
At ASAP Payroll, we’re proud to offer personalized payroll solutions at a competitive price. Get in touch today to learn more and request your customized quote!
