From aviation and aerospace to hospitality and life sciences, the State of Florida is a land of opportunity for entrepreneurs from every industry. A steadily growing economy, inviting climate, and robust population of nearly 10 million talented workers make it a literal hotspot business destination.
But like all places, the Sunshine State has its own unique set of payroll tax regulations that employers must follow to remain compliant. Post-tax deductions are especially confusing for employers new to the region, as its laws on what is and isn't allowed are very different from those of other US states.
To help you get up to speed, we've put together this article that explains the key payroll tax considerations you need to keep in mind when hiring in Florida.
Types of Payroll Deductions
Broadly speaking, an employer can make two types of deductions from an employee's wages: mandatory deductions and post-tax deductions. The first kind is required by local, state, and national employment laws, while the second kind is voluntary and not always required.
What Is a Post-Tax Deduction?
Post-tax deductions are deductions taken from an employee's paycheck after federal, state, and local taxes have already been taken out. These deductions are typically used to cover supplemental employee benefits such as health insurance, 401(k) contributions, and other fees associated with employment.
Post-tax deductions can also be voluntary or involuntary. Voluntary post-tax deductions are made by the employee and typically include retirement savings accounts, charitable contributions, union dues, or other personal payments. Involuntary post-tax deductions are taken from an employee's paycheck by the employer, such as health insurance premiums or disability insurance premiums.
In either case, workers should know what post-tax deductions are taken out of their earnings and have agreed to them beforehand. Job offers and contracts often include clauses provisioning installments as a term of employment.
Florida Tax Withholding Requirements
Florida stands out among other US jurisdictions because it does not have a state income tax, but you still have to pay federal income taxes. Workers get to keep a larger share of what they earn per year, albeit with concessions in the scope of publicly funded services available to them should they lose their jobs.
Unlike several other states, Florida doesn't offer its residents the option of protected, paid leave, either. Workers take more of their paycheck home but their safety nets aren't quite as robust.
That said, the State of Florida joins its 49 counterparts by imposing federal income taxes and deductions on employees' earnings.
These are mostly mandated by the Internal Revenue Service (IRS).
Federal Income Tax
Floridian workers may not have to pay local or state-level personal income tax, but they are still obligated to pay federal taxes. After all, it's citizens' tax dollars that support essential programs like Social Security, Veterans Benefits, and Federal Law Enforcement.
United States Federal Income Tax follows a progressive system that increases in tandem with income. It’s collected by the IRS and must be paid on wages, salaries, capital gains, interest income, and dividends.
Brackets for 2023 are as follows:
- 10% on earnings between $0 and $11,000
- 12% on earnings between $11,001 and $44,725
- 22% on earnings between $44,726 and $95,375
- 24% on earnings between $95,376 and $182,100
- 32% on earnings between $182,101 and $231,250
- 35% on earnings between $231,251 and $578,125
- 37% on earnings of $578,126 or more
We should highlight that these ranges apply to taxpayers who file as individuals. Joint filers, married and separate filers, and heads of household have different brackets.
Federal Insurance Contributions Act (FICA) Payments
Established in 1935, the Federal Insurance Contributions Act (FICA) requires employers to withhold taxes from an employee’s paycheck to fund essential national programs like Social Security and Medicare.
The amount of FICA taxes an employer must withhold is based on the employee's gross wages, including tips, bonuses, and commissions. The employer must match the amount withheld from employee wages, and both contributions are deposited into the Social Security Trust Fund and Medicare Trust Fund.
Employers must report the total amount of FICA taxes withheld from their workers' wages to federal and state tax agencies quarterly. If an employer fails to withhold or remit FICA taxes to the appropriate government agencies, they may be liable for back taxes, interest, and penalties.
FICA payments are split into two main categories — Social Security and Medicare — each with its own respective annual rate. Social Security
Over 71 million Americans rely on Social Security payments. The federally administered program supplements part of the income workers and their families lose in the event of disability, retirement, or death with regular money installments.
Many people are unaware that Social Security payments aren’t just for those who have already retired. In fact, disability benefits account for almost a third of all Social Security payouts — with those on Supplemental Security Income (SSI) representing the largest segment of recipients.
The Social Security program also provides survivor benefits to spouses, children, and sometimes even parents of workers who have passed away. Benefits are paid out monthly until the surviving dependents reach a certain age.
The Social Security Administration is publicly funded, meaning taxpayer dollars are responsible for keeping Old Age, Survivor, and Disability Insurance (OASDI) and Supplemental Security Income (SSI) running effectively. Much of this is obtained through a 6.2% payroll tax on workers' earnings.
Employers must withhold this amount from their employees' pay and contribute an additional 6.2% themselves up to a limit of $160,200 per year.
Medicare
In a country known for its pricey healthcare, Medicare is a lifeline to millions of American seniors. It helps them cover the costs of basic medical care, including hospital stays, doctor visits, and prescriptions.
Most seniors become eligible for Medicare when they turn 65. However, certain younger adults with disabilities can also qualify. Tax dollars make up a large portion of the program's funding and also fund the Centers for Medicare & Medicaid Services.
FICA payroll taxes include a deduction for Medicare. This is paid by both employers and employees at an equal rate of 1.45%. While mandatory Social Security payments end after a worker exceeds a certain income level, Medicare actually increases its rate by 0.9% on individual salaries over $200,000 a year.
Property taxes and others
The state of Florida as a whole does not assess a property tax, although local governments can often do so. As a result, Florida had the 11th-lowest state/local tax burden in the U.S. in 2022, according to the Tax Foundation's most recent analysis.
Florida also does not levy an estate tax, following a similar approach to property tax. However, Florida charges a sales tax of 6% unless the sale is tax-exempt. Medicine and most groceries are among the goods that aren't subject to this type of taxation.
What Florida Payroll Taxes Do Employers Pay in the Sunshine State?
While jurisdictions like New York and California levy several state-level taxes on working individuals' income, Florida does not. In fact, it gives employers a fair burden to carry by adding two payroll-related contributions.
Social Security and Medicare Contributions
As a reminder from earlier, most employers across the US must match their workers' payments to programs under the Federal Insurance Contributions Act. This means an amount equivalent to 6.2% of each employee's earnings must go to Social Security, and 1.45% to the Centers for Medicare, every year. That's a collective rate of 6.65% per staff member.
Withholdings from individual paychecks will be collected throughout the year and submitted alongside employer contributions to the IRS. The government should receive an amount equivalent to 13.30% of every employee's gross wages when all is said and done.
State Unemployment Insurance (SUI) Tax
Each and every one of America's 50 states has its own Unemployment Insurance, or UI, program. Managed on a regional level, UI is designed to offer temporary financial help to workers who have lost their jobs through no fault of their own.
The primary goal of UI is to help those unemployed due to a job loss, illness, or other involuntary event. It can also be an important safety net for individuals and families in case of unexpected financial hardship.
Florida's Reemployment Assistance program gives qualifying individuals weekly payments up to a maximum of $275. A number of criteria must be met to receive benefits, while the application process itself can take one to two weeks.
With that being said, many Floridians have relied on UI to stay afloat over the years. It was incredibly important during the height of the COVID-19 pandemic when Governor Ron DeSantis says more than 1.3 million residents reported joblessness.
Unemployment Insurance is meant to protect everyday workers from the decisions businesses make. That's why it's funded through a tax on employers, and not staff.
How State Unemployment Insurance (SUI) Tax Rates Work
Florida's State Unemployment Insurance Tax is administered in two phases. The first, consisting of an employer's initial ten quarters of eligibility, imposes a fixed rate of 2.7% on payroll. The second phase applies a variable rate based on an employer's claim history and the total wages they've paid.
Tax officials consider three main factors when determining experience-based tax rates. These are:
- The Individual Benefit Ratio represents the three previous years of post-tax benefit deductions on employee paychecks against the taxable payroll for the same period.
- The Variable Adjustment Factor considers three separate ratios that analyze state employers' last three years of non-charged benefits, excess payments, and the fund size factor, which is influenced by the amount of taxable payroll contributions made into the Unemployment Compensation Trust Fund.
- The Final Adjustment Factor spreads out the costs not included in the Variable Adjustment Factor to employers whose rates are at specific levels or who haven't made benefit charges in the past three years.
Confusing? That's just the beginning. Florida State Unemployment Insurance Tax is a black box of sorts, determined by the Department of Revenue and difficult to calculate on your own.
On a broad scale, employers must pay state unemployment taxes between a minimum rate of 0.10% to a maximum of 5.4% of workers' earnings annually, up to a limit of $7,000 per employee.
Corporate Income Tax
Large companies are expected to pay their fair share in Florida — it has a mandatory Corporate Income Tax that applies to most organizations that do business and earn money in the state. While sole proprietorships and S corporations have exemptions, LLCs of practically every kind must participate. That includes out-of-state corporations engaged in Florida-based business partnerships.
Corporate income tax rates in Florida are just as confusing as SUI, requiring businesses to determine an income adjusted from what they filed for federal taxes. Adjustments, additions, and subtractions must all be included to come up with a taxable figure, which is then taxed at a statewide rate of 5.5%.
Florida Corporate Income Tax isn't directly tied to payroll or staff earnings, but it's an expense that most employers in the state can reasonably expect to pay.
Examples of Post-Tax Payroll Deductions in Florida
Post-tax deductions can take many forms and can likewise be applied for various reasons. The State of Florida is relatively unique because it doesn't have many rules dictating what can and can't be deducted from a worker's paycheck. Businesses essentially have the right to make any deductions so long as they have been authorized in writing by the employee and do not bring their earnings below minimum wage.
Retirement Savings Plans
401(k) plans, 403(b) plans, and other retirement savings vehicles allow workers to save for the future by having money withheld from their paychecks on a pre-determined schedule. Before-tax deductions are also available in some cases.
Health Insurance
Employers in Florida can make deductions for health insurance plans, many of which offer workers access to discounted medical coverage through monthly or biweekly installments. Some businesses choose to completely cover the cost or share some of the premium with staff, while others pass on the entire plan payment amount to workers.
Life Insurance
Most employers offer life insurance policies that are automatically deducted from the employee's paycheck each month. This way, employees can receive coverage without paying a lump sum up-front.
Life insurance plans are sometimes included as part of an employee benefits package, or they can be purchased separately if the employee would like additional coverage. Companies can completely cover, split, or pass on this post-tax deduction as well.
Uniforms
While many American states don't allow businesses to deduct uniform costs from employee wages, it is permitted under the vagueness of Florida's laws. Employers can specify a certain percentage of the uniform cost and deduct that amount from each paycheck.
Of course, employers must provide advance notice before implementing any deductions for uniforms and have written agreement from staff for deductions to take place.
Damages
Again, not allowed everywhere in the United States, but Florida employers can reasonably deduct a certain percentage of an employee’s wages as compensation for damages caused by the employee.
For example, restaurant staff could be held accountable and have their pay docked if they break or damage any equipment. As with uniform deductions, employees must agree in writing before any deductions can be made.
Legal Fees and Fines
In some cases, employers may be legally required or permitted to deduct certain fines from employee wages. These can include penalties for safety violations, legal fees associated with employee disputes, or even taxes. Depending on the situation, employers may also be able to deduct other costs associated with a lawsuit from an employee’s wages.
To Conclude
The State of Florida has been an attractive hiring ground for many businesses in recent years, and its diverse economy means that there are plenty of opportunities to capitalize upon. However, as with all jurisdictions worldwide, employers must take care to ensure that they are following local labor laws.
Borderless is here to help you navigate it all with a suite of EOR and global contractor management services designed to keep you compliant.
Whether it’s understanding wage deductions, navigating immigration processes, or simply ensuring your team is paid accurately and on time, Borderless has the expertise and experience to help make sure everything goes smoothly.
Plus, we share that expertise with you. Check out our Blog which features articles on compliance, global laws and regulations, and how you can effectively manage an international team.
Disclaimer: Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
