Payroll Taxes for New Dental Practices: What You Owe
Learn what payroll taxes a new dental practice owes, how to calculate them, and steps to stay compliant in 2026.
Starting a dental practice means taking on employer responsibilities, and payroll taxes are a big part of that. You owe federal income tax withholding, Social Security and Medicare taxes, federal unemployment tax, and state taxes. This guide breaks down each tax, gives you realistic numbers, and shows you how to handle them from day one.
Federal Payroll Taxes: The Basics
As an employer, you must withhold and pay several federal taxes. Here’s what you owe:
1. Federal Income Tax Withholding
You withhold this from each employee’s paycheck based on their W-4 form. The amount depends on their filing status and allowances. You don’t pay this out of your own pocket; you hold it and remit it to the IRS.
2. Social Security and Medicare (FICA)
You and your employee each pay 7.65% of wages: 6.2% for Social Security (up to the annual wage base, $168,600 in 2026) and 1.45% for Medicare (no wage limit). For example, an employee earning $60,000 a year: you pay $3,720 for Social Security and $870 for Medicare, and the employee pays the same. You must match their contribution.
3. Federal Unemployment Tax (FUTA)
You pay this tax, not the employee. The rate is 6% on the first $7,000 of each employee’s wages, but you get a credit of 5.4% if you pay state unemployment taxes on time, making the effective rate 0.6%. That’s $42 per employee per year, up to $7,000 in wages.
State Payroll Taxes
Most states have their own income tax withholding and unemployment insurance. Rates vary widely. For example, California’s unemployment insurance rate ranges from 1.5% to 6.2% on the first $7,000, while Texas has no state income tax but still has unemployment taxes. Check your state’s workforce agency for specifics. You must register with the state before running payroll.
How to Calculate and Pay Payroll Taxes
Follow these steps:
- Get an EIN: Apply for an Employer Identification Number from the IRS if you haven’t already.
- Register with your state: For state income tax withholding and unemployment insurance.
- Choose a payroll schedule: You’ll pay federal taxes monthly or semiweekly, depending on your total tax liability. Most new practices start monthly.
- Calculate taxes each pay period: Use payroll software or a service to compute withholding, FICA, and unemployment.
- Pay the IRS: Use the Electronic Federal Tax Payment System (EFTPS) to deposit federal taxes. Deadlines depend on your schedule.
- File quarterly returns: Form 941 (Employer’s Quarterly Federal Tax Return) reports wages and taxes. File by the last day of the month after each quarter (April 30, July 31, Oct 31, Jan 31).
- File annual returns: Form 940 for FUTA, and provide W-2s to employees by January 31.
Payroll Services vs. DIY: What’s the Cost?
You can handle payroll yourself with software, or hire a service. Here’s a comparison:
| Option | Cost Range (per month) | Pros | Cons |
|---|---|---|---|
| DIY with software (e.g., QuickBooks Payroll, Gusto) | $40-$100 plus $5-$10 per employee | Lower cost, control, integrates with accounting | You’re responsible for deadlines and calculations |
| Full-service payroll (e.g., ADP, Paychex) | $100-$300 plus $10-$20 per employee | They handle tax filings and deposits, reduce errors | Higher cost, less control |
| PEO (Professional Employer Organization) | $500-$1,500+ per month | They become co-employer, handle HR, benefits, and payroll | Expensive, less direct control |
For a new practice with 5 employees, DIY software might cost $75-$150/month. A full-service provider might run $150-$400/month. Weigh the cost against your time and risk.
Common Mistakes to Avoid
- Missing deadlines: Late deposits and filings trigger penalties. The IRS charges 2% to 10% of the unpaid tax, depending on how late.
- Misclassifying employees as independent contractors: Dental hygienists and assistants are usually employees. Misclassification can lead to back taxes and penalties.
- Forgetting state taxes: State unemployment and income tax have their own deadlines and rates.
- Not keeping records: Keep payroll records for at least 4 years, including time cards, pay rates, and tax filings.
Steps to Take This Week
- Get your EIN if you don’t have one (free from the IRS website).
- Register with your state’s tax agency for withholding and unemployment.
- Choose a payroll system: Compare software or services based on your employee count and budget.
- Set up a payroll calendar: Mark all federal and state deadlines.
- Run a test payroll to ensure calculations are correct before your first real payday.
FAQ
Q: When are payroll taxes due? A: Federal deposits are due monthly (by the 15th of the following month) or semiweekly (within 3 days of payday), depending on your liability. Quarterly Form 941 is due by the last day of the month after the quarter. State deadlines vary.
Q: What if I can’t pay payroll taxes on time? A: Contact the IRS immediately. You may qualify for a payment plan, but interest and penalties will accrue. Ignoring it makes it worse.
Q: Do I have to pay payroll taxes for myself as the owner? A: If you’re a sole proprietor or partner, you don’t take a salary, so you don’t pay payroll taxes on your own earnings. Instead, you pay self-employment tax on your net income. If you’re an S-corp owner, you must take a reasonable salary and pay payroll taxes on it.
Q: Can I use a payroll service to handle all tax filings? A: Yes, full-service payroll providers will calculate, deposit, and file federal and state taxes for you. Make sure they handle both federal and state, and ask for a guarantee against penalties.
The Bottom Line
Payroll taxes for a new dental practice include federal income tax withholding, FICA (7.65% each for you and the employee), FUTA (up to $42 per employee), and state taxes. You must register, calculate, deposit, and file on time. Use payroll software or a service to stay compliant. The cost is manageable, and the peace of mind is worth it. Start by getting your EIN and registering with your state this week.