Indiana Salary Paycheck Calculator
If you’re a small business owner in Indiana, you probably know that hiring employees means more than just writing a paycheck. There are a lot of payroll taxes—and numerous paycheck rules—that you’re required to manage. To help you keep on top of it all, we’ve answered the most commonly asked questions about Indiana payroll taxes and paycheck rules below.
Indiana state payroll taxes
How is Indiana withholding tax calculated?
With a flat tax rate of 3.23% on personal income, calculating the Indiana withholding tax isn’t too tricky. For most employees, you multiply their taxable wages by 3.23% to come up with the withholding tax amount.
Indiana has tax reciprocity agreements with some of its neighboring states. That allows residents of those states to work in Indiana without having Indiana taxes withheld from their paychecks. If you have employees who reside in Kentucky, Michigan, Ohio, Pennsylvania, or Wisconsin, they should complete Form WH-47, Certificate of Residence, to certify that they’re residents of one of these states and aren’t subject to Indiana withholding tax.
Indiana counties also charge an income tax that you’ll need to withhold from workers’ paychecks. Employees need to complete Form WH-4, Employee’s Withholding Exemption and County Status Certificate, so you’ll know which county tax to take out. Have a look at Indiana Department of Revenue Departmental Notice #1 to find the county tax rates.
How do Indiana employers pay withholding tax to the state?
After your business registers with the Indiana Department of Revenue, you’ll be able to send tax payments to the state. How often you pay depends on the amount of tax you withhold in a year. Indiana’s payment frequencies are:
- monthly, or
- early monthly (payment required 20 days after the end of the month)
Employers are encouraged to make tax payments online. Each time you make a payment, you’ll need to file a payroll tax return on Form WH-1, Indiana Withholding Tax Voucher. These returns are due even for periods when you have no tax to pay or paid no wages.
Annual reports using Form WH-3, Annual Withholding Tax Form, are also required from every employer. Copies of Form W-2, Wage and Tax Statement, need to accompany your annual report.
How is Indiana’s unemployment tax calculated?
Indiana employers (not employees) pay the unemployment tax. The tax is paid on the first $9,500 of each worker’s pay each year. Most new employers pay a 2.5% tax rate for the first four calendar years. After that time, The Department of Workforce Development reviews your experience with the unemployment program and assigns you an experience-based rate.
Experience rates are based primarily on the number of claims paid compared to the amount of tax you paid, and your past 36 months’ payroll amounts. Experience rates range between 0.50% and 7.40%.
You’ll pay unemployment tax each quarter and file wage reports. Indiana prefers that you file and pay online using their Employer Self Service portal.
To learn more about Indiana’s unemployment tax, read Indiana’s employer handbook.
What is the salary threshold in Indiana?
Because the state of Indiana doesn’t have its own salary threshold, it adheres to the federal salary threshold, which is now $684 per week (equivalent to $35,568 per year for a full-year worker). The Department of Labor permits employers to count some bonuses, commissions, and other incentive payments toward meeting the standard salary level (up to 10%). Employees who earn at least $107,432 per year may qualify as “highly compensated.” See this Department of Labor fact sheet for details.
Do new employees need to be reported to the state?
When is Workers’ Compensation insurance required in Indiana?
Requirements to obtain Workers’ Compensation vary by state, this table outlines some of these requirements. If you determine that your company is required to purchase Workers’ Compensation insurance in your state, learn how to sign up for this insurance with Gusto. Sometimes, companies get a request for a workers’ comp audit—head to this article and click the workers’ comp audit reports dropdown for more information.
When are final paychecks due to employees after they leave?
When employees resign or their employment is terminated, the final paycheck needs to be provided no later than the next regularly scheduled payday.
Federal payroll taxes in Indiana
If an Indiana employer already pays state unemployment tax, do they also have to pay federal unemployment tax?
Yes. Like the state, the federal government also has an unemployment tax. It’s called FUTA and it’s an annual tax employers pay on the first $7,000 of each employee’s wages. The FUTA rate for 2022 is 6%, but many employers only have to pay 0.6% each year.
What is FICA tax?
The Federal Insurance Contributions Act, or FICA tax, is made up of the Medicare tax and the Social Security tax. In 2022, the Social Security tax requires employers and employees to each contribute 6.2% of wages up to $147,000. The Medicare tax requires each to contribute 1.45% of all wages. See the IRS webpage for details, like maximum thresholds.
|Social Security||6.2% on the first $147,000 of wages in 2022||6.2% on the first $147,000 of wages in 2022|
|Medicare||1.45% on all wages||1.45% on all wages|
What is the Additional Medicare tax?
In addition to the 1.45% Medicare tax employees pay via FICA, some workers may need to pay an Additional Medicare tax. If you have any employees earning more than $200,000 per year, you’ll need to deduct 0.9% of the wages greater than $200,000.
How do employers know how much federal income tax to take out of employees’ paychecks?
Calculating an employee’s federal withholding tax involves Form W-4, Employee’s Withholding Certificate, and some tax tables. Have employees complete Form W-4 when they start work. Information on this form is critical to calculating the amount of tax to take out. Although a new Form W-4 isn’t required each year, it’s a good idea to have employees review it for any changes.
With the Form W-4 information, you’ll use the federal tax tables and your employee’s pay amount to come up with the withholding amount. An easier way to figure this out is to use payroll software. You’ll input your worker’s information, and the software will make the tax calculations for each pay period.
When are federal payroll taxes paid?
The frequency that you’ll pay your federal payroll taxes depends on how much you owe.
Monthly, semi-weekly, or next-day payments
Three of the four federal payroll taxes are paid monthly, semi-weekly, or the next day. FICA, federal withholding, and the Additional Medicare tax are paid most frequently.
You’ll also need to file quarterly payroll tax returns. You’ll use Form 941, Employer’s Quarterly Federal Tax Return, to reconcile the amount of tax you owe with the amount of tax you already paid.
Annual or quarterly payments
Federal unemployment tax is paid annually or quarterly. Annually is the most common frequency, but you’ll need to make quarterly payments if you owe more than $500.
As with the other federal payroll taxes, you’ll need to file a payroll tax return. You’ll file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, each time you make payment.
If all of this information seems overwhelming, don’t worry. There are plenty of resources available to help you. Professional payroll accountants can take the lead with all your payroll needs. As well, comprehensive payroll providers can do everything from onboard new workers to file and pay your payroll taxes.