Utah Payroll Tax and Registration Guide

Starting a business in any state can be overwhelming, as you need to become familiar with several federal and state laws and regulations. In this Utah payroll tax and registration guide, I will walk you through all the steps you need to take to comply with the state’s payroll tax regulation.

This process is straightforward once you have all the necessary documents and know how to calculate the withheld tax amount since the state of Utah allows employers to file all the paperwork electronically through the Tax Payer Access Point.

Utah is one of the ten states that have a flat payroll tax rate, so you won’t have to calculate marginal rates or spend time figuring out tax brackets. Let’s take a look at what you need to do to start paying payroll tax in Utah.

Becoming an Employer in Utah

Data published by the Small Business Administration reveals that 96.7% of businesses in Utah are registered as small businesses with fewer than 500 employees. Hence, the majority of the state tax revenue comes from companies that generate less than $7.5 million of annual profit.

These businesses must pay payroll tax for each employee and be registered as an LLC, corporation, sole proprietorship, or partnership. You can register a business in Utah using the OneStop Business Registration platform or the Doing Business As (DBA) website.

The filing fees are $70 unless you’re registering a sole proprietorship or partnership, in which case the registration is free.

Also, you need to go through the business name registration process with the Utah Division of Corporations and Commercial Code and then protect the name of your business by registering it at the US Patent and Trademark Office.

Obtaining the Employer Identification Number

Arguably, the most important step you’ll take during the business registration process is obtaining the employer identification number (EIN). You’ll have to provide the following information to acquire this 9-digit number:

• Business address
• Legal business name
• Owner’s name
• Names and contact information of the business owner, managing director, etc
• Number of employees
• Range of activities the business is going to perform
• The date when the business was founded

You’re going to need this number to open the company’s bank account, apply for permits or licenses, hire employees or pay taxes. In addition, EIN is usually issued during the process of registering a business with the state or federal government.

Furthermore, this number is commonly used as the account for paying payroll taxes, unemployment taxes, and income tax withholdings.

All businesses in the state of Utah that have more than one employee must obtain this number since, in this case, the owner’s social security number cannot be used to identify the business.

Registering the Tax ID Number and the Withholding Account ID

Besides the EIN, you’re also going to need the tax ID number and the withholding account to settle payroll taxes for your employees. Businesses operating in Utah utilize EIN to register their organization with the IRS, and they need the tax ID number to file taxes on the state level.

This number is issued by the Utah State Tax Commission to enable the business to pay different state business taxes. Hence, paying payroll tax without the business tax ID number isn’t possible, and you’ll have to obtain it to hire employees.

The withholding account ID is acquired by completing the application process on the OneStop Online Business Registration platform. It is also necessary to obtain the employer registration number either through the Utah Department of Workforce Services or the OneStop Online Business Registration platform.

Keep in mind that registering an employee without an employer registration number is not possible.

Understanding the Payroll Tax

The payroll tax is the tax an employer pays for the salaries and wages of employees. These taxes commonly cover social and medical insurance, and they generate more than 20% of federal, state, and local government revenue.

As an employer in Utah, you will have to pay for both state and federal payroll taxes. The federal payroll taxes usually include Federal Insurance Contribution Act or FICA that covers social security and Medicare and Federal Insurance Unemployment Tax Act.

The social security tax only applies to salaries below the $132,900 threshold, while the Medicare tax applies to all salary levels.

Utah has a flat 4.95% payroll tax that applies to all salaries, and it is added to the federal payroll taxes. In addition, Utah’s state unemployment insurance is calculated from the $38,900 wage base, at a rate that spans from 0.2% to 7.1%.

Gathering the Necessary Documents

Employers must acquire several documents from their employees to calculate the amount they have to deduct from their salaries. As a business owner in Utah, you’ll have to obtain the following documents:

• W-4 Form – Employees withholding certificate
• I-9 Form – Employment eligibility
• Authorization for direct deposit

W-4 Form

Each new employee you hire has to fill out the W-4 form and provide his or her personal data, current marital, employment status, and employment status of their spouse or claim dependents.

Utah doesn’t have the state version of the W-4 form, so your employees will only have to complete the IRS version of this form. The information provided in the W-4 form is used to determine the appropriate withholding method.

It is worth noting that the IRS revised this form in 2020, but these changes only apply to employees hired after the revision. This document remains with the employer, and you shouldn’t submit it to the IRS unless you’re requested to do so.

Authorization for Direct Deposit

Employees can choose to receive their wages and salaries in cash, via paper check, prepaid debit card, or direct deposit.

More than 80% of employees in the United States choose to receive their salaries through a direct deposit, so if your employee chooses this payment method, you will have to acquire the authorization for direct deposit.

This form should contain the employee’s bank account and routing number and their personal information.

I-9 Form

Employers are required by the law to obtain the I-9 form from a new employee before they start working. The form serves as proof that an employee is eligible to work in the United States or Utah.

Submitting a passport, social security card, or driver’s license can also be used to prove the employee’s work eligibility. The I-9 form remains in the employee’s file, and the employer shouldn’t share it with tax authorities.

Calculating the Payroll Tax

The information provided in the documents employees submit to employers is utilized to calculate the amount you have to withhold from their salaries. You can complete this process in just a few simple steps. Here’s what you need to do.

Determine the Gross Pay

The total amount an employee has earned between two payment periods before tax deduction is called gross pay. In case your employees work on an hourly basis, you can calculate their gross pay by multiplying their hourly rate by the number of hours they worked in a week.

You should also add the employee’s overtime hours, and in Utah, the average overtime rate is 1.5 higher than the hourly rate.

Determining the gross pay for salaried employees is simple since you just have to divide their annual pay plus the bonuses, commissions, or tips they had during the year by the number of pay periods.

Calculating the Federal and State Payroll Taxes

Before you start to calculate the amount you should withhold from an employee’s salary, you first need to determine if they have any pre-tax withholdings, such as a Health Savings Account or 401(k) plan.

Once you’ve deducted the pre-tax withholdings from the salary, you can proceed to calculate the federal income and FICA taxes. You can either use the percentage or wage bracket method to calculate the federal income tax.

Federal Income Tax

You can find the instructions on using either of these methods in the IRS’s guide to the Federal Income Tax Withholdings Methods. Keep in mind that the deductible sum depends on factors such as the employee’s marital status, additional sources of income, and salary range.

So depending on these factors, the amount you will have to withhold varies from 0 to 37%.

Federal Insurance Contribution Act Taxes

The FICA taxes include the medicare and social security contributions that are mandatory for all employees on the territory of the United States.

The flat rate of 6.2% social security tax is applied to all annual salaries below the $142,800 threshold, while wages above this threshold are exempt from this tax. Hence, the maximum social security tax is limited to $8,853,60 per year.

The Medicare tax applies to all wage levels. For salaries below $200,000, the flat rate of 1.45% is withheld from the wage. The additional Medicare tax of 0.9% applies to all employees that earn more than $200,000. So, if an annual salary is above this threshold, its Medicare tax with be 2.35%.

Utah State Payroll Tax

Once you’ve determined how much of the employee’s salary should go to federal payroll taxes, you can proceed to calculate the state payroll tax. Utah is one of ten states that has a flat payroll tax, which means that the same rate applies for all wage levels.

So, you will have to withhold 4.95% of the employee’s wage for the state payroll tax.

Paying the Unemployment Insurance

Employers in the state of Utah are under obligation to pay the unemployment insurance that covers the employees that face unemployment due to circumstances they cannot control.

The tax rate ranges from 0.2% to 7.1%, and it is applied to the state’s wage base of $38,900. Utah’s wage base is expected to rise to $41,600 in 2022.

All new employers receive the unemployment tax rate when they register their business, and the rate is determined based on the industry they’re working in and the state’s benefit ratio. Employers with more than one fiscal year of experience pay unemployment insurance tax rates based on earned rate system.

Employer Payroll Taxes

Besides employee taxes, companies based in Utah also have to cover payroll taxes that apply only to employers.

Most importantly, employers must match the FICA taxes for all their employees. Hence you’ll have to cover 6.2% social security tax and 1.45% Medicare tax for each new employee your business takes on board.

In addition, employees cannot pay unemployment taxes, as this is solely the employer’s responsibility. That’s why a business must settle both FUTA or Federal Unemployment Tax and SUTA or State Unemployment Tax.

FUTA tax rate is 6.0% of the first $7.000 an employee makes in a fiscal year, and companies from states that have state unemployment tax are eligible for a 5.4% federal tax rate credit. This means that most employers based in Utah pay just 0.6% of FUTA tax.

The SUTA tax rates in Utah range from 3% to 7.3% and the tax is calculated based on the state’s base wage.

Filing taxes to IRS and Utah State Withholding Agency

The amounts withheld from salaries must be sent to appropriate state and federal tax authorities. All federal taxes that apply to employers and employees are sent to the IRS. State payroll taxes are filled with the Utah State Withholding Agency.

Both tax authorities offer detailed guidelines regarding how the payments should be made and which forms a company must submit before sending withheld taxes.

The frequency at which these payments should be made depends on several factors, including the employee’s wage level, the frequency at which salaries are paid, and the company’s historical payroll analysis.

In most cases, federal taxes are submitted quarterly, while the Utah State Withholding Agency allows employers to file and pay monthly, quarterly, or annually depending on the amount they withhold.

So, if your business withholds more than $1,000 of state taxes per month, you will have to pay the state’s payroll taxes every month. For withheld sums below $1,000, businesses have to submit payments quarterly.

Also, Utah-based businesses with a withholding tax account must submit annual tax reports regardless of how frequently they file for taxes or how many employees they have.

Frequently Asked Questions About Utah Payroll Tax and Registration

Final Thoughts

Starting a new business in Utah may seem intimidating until you get more familiar with the state’s taxation system. Unlike most states, Utah has a flat payroll rate that makes it easy to calculate the amount you should withhold from the employee’s salary.

Besides state payroll taxes, businesses based in Utah also have to deduct federal income, unemployment insurance, and FICA taxes.

These taxes can take more than 40% of the employee’s salary, as the maximum federal income tax rate is 37%, while the FICA taxes have a combined fixed rate of 7.65%. I hope that this Utah payroll tax and registration guide has helped you learn more about the state’s business taxation system.

Share your opinions with me in the comments.

Further readings:

• North Carolina Payroll Tax and Registration Guide
• Florida Payroll Tax and Registration Guide: Understanding the Florida Payroll Tax
• Is Third Party Sick Pay Taxable