Small business owners know the struggle of wearing too many hats. But they also know the satisfaction of reaching their goals due to hard work and collaboration. Every entrepreneur knows the value of a reliable team that can cover all the moving parts of a business, thus allowing the owner room to dream big and find new & refreshing ideas.
Still, some responsibilities, such as paying taxes and employees, cannot be delegated that easily. In fact, most small business owners do the taxes and payroll themselves, and only check with an accountant when it’s absolutely necessary. As a result, a big chunk of time is dedicated to paperwork, calculations, and learning about legal and financial risks that are specific to their state.
For instance, someone who does payroll in the state of Maryland needs to know about the state and local income tax withholding schedules. Moreover, because there are 23 counties that charge local taxes, Maryland has more nuances when it comes to payroll, employee calculation, and paid time off.
Therefore, if you’re new to the world of doing business in Maryland, it’s best to pay attention to the following:
Get the Right Tools
It doesn’t matter if you run a team of two. You still have to do all the paperwork and make sure it is updated according to legal requirements. Additionally, while you may start with just two people, chances are your business will grow.
Therefore, it helps to have a specialized tool that can help automate some of the processes. In this case, you need payroll services to comply with Maryland’s payroll laws, which is why it’s important to check if the tool was designed for such a scenario.
Here are a few of the elements a payroll tool needs to have in Maryland:
- Payroll forms – forms like W-4, I-9, and Direct Deposit information. Also, for Maryland, the form MW507 is needed.
- Progressive income tax – between 2% and 5.75%, depending on income. Also, the income tax may vary depending on the location. Check tax rates in Maryland for more accurate information.
- State minimum wage – $11.75/h
- New hires reporting – once a business decides to hire a new employee, they will have to report it to the Maryland State Directory of New Hires.
Central Registration Number (CRN)
In Maryland, every business must register to get a CRN from the Maryland Comptroller. While doing so, you can also register for unemployment insurance taxes and income withholding.
Quick note: You cannot start your activity without a Federal Employer Identification Number (FEIN).
Know the Payroll Taxes Specific to Maryland
Small business owners must consider taxes, in addition to the federal taxes, that need to be taken out of a W2 employee’s check. For instance, the income tax is progressive (as mentioned above), but there is also a supplemental income tax that applies to additional income (bonuses, commissions, and other benefits) and ranges between 3.2% and 8.95%.
Independent Contractors
In Maryland, payments to independent contractors (consultants, freelancers, and others) are considered exclusions in Maryland. This means these payments are considered income that is not subject to taxes. Of course, independent contractors will have to do their own taxes, but it is not something a business owner should worry about.
In short, independent contractors shouldn’t show up on your payroll. The payment to such a collaborator will be seen as an acquisition of services.
Unemployment Tax
According to official data, Maryland’s unemployment tax in 2020 was between 0.3% and 7.5%, and the taxable wage base was $8,500. Now, the rate is established based on the business’s experience over the past three fiscal years.
In short, based on these data, if you are a new business, your rate is 2.6%. Still, the rates are updated annually, so it’s best to stay informed. Or, if you collaborate with an accountant, make sure they stay on top of their field’s news.
Key Takeaway
Employee retention is expected to drop in the following 12 months, but small businesses can counteract this trend by making sure their payroll is well-designed and all the data stay easily accessible. Therefore, it is important to make sure all the rules and regulations are being followed. Additionally, it’s best to find the best tool to handle all the repetitive tasks and check for any costly mistakes before filing.