US Payroll Software for Small Businesses: Federal and State Tax Made Simple

US payroll has a reputation for complexity, and the reputation is deserved. It is not one payroll system — it is a federal system plus fifty state systems, and they do not agree with each other. This guide explains what US payroll software has to handle for a small business, and how to keep it manageable.

The two layers of US payroll

Federal. Every US employer deals with federal payroll tax. That means federal income tax across seven brackets, from 10% up to 37%, calculated using the employee's Form W-4. It means FICA — Social Security at 6.2% from the employee and 6.2% from the employer, up to a wage base of $168,600, and Medicare at 1.45% each side with no cap. Higher earners also pay an Additional Medicare contribution of 0.9% on wages above $200,000. And it means FUTA, federal unemployment tax, paid by the employer.

State. This is where it gets harder. Some states — Texas, Florida, Washington — have no state income tax at all. Others, like Illinois and Massachusetts, use a single flat rate. California and New Jersey use graduated brackets, and California's top rate reaches 13.3%. New York adds a further layer: New York City residents pay an additional city tax.

US payroll is not hard because any one calculation is hard. It is hard because there are so many of them, and they vary by state.

What good US payroll software does

It calculates federal income tax from W-4 data, applies FICA correctly including the wage base cap and the Additional Medicare threshold, and computes FUTA. It then applies the right state rules for each employee's state — graduated brackets, a flat rate, or nothing at all — and handles city-level taxes such as New York City's. It produces clear payslips that show the federal, state, and FICA breakdown, and it explains how to file: Form 941 quarterly, W-2 annually, and the state filings that vary by state.

How Mellow handles the US

Mellow calculates US federal payroll — the seven income-tax brackets, FICA with its wage base and Additional Medicare threshold, and FUTA — and adds state tax for eight launch states covering a large share of US employment: California, New York, Texas, Florida, Illinois, Washington, Massachusetts, and New Jersey. New York City's additional resident tax is handled. W-4 data drives the federal withholding.

Mellow does not file with the IRS for you — it calculates accurately and gives you a step-by-step guide to filing Form 941 and your state returns. You keep control of your filings; the software removes the arithmetic and the guesswork.

For a small US business

A small business does not need an enterprise payroll suite. It needs software that gets federal and state tax right, produces a clear payslip, and tells you exactly what to file and when. Mellow does that, alongside the rest of the HR platform, from $5 per employee per month.

See Mellow pricing or read the Mellow vs Deel comparison for US employers.