No matter how many employees you have, payroll is something that you cannot avoid. The moment you hire your first employee, it becomes your responsibility to calculate their paychecks, payroll tax along with other federal and state taxes
Processing payroll is the largest expense for any business and is complicated as well. If you are a small business and overthinking about how to calculate payroll taxes, you have come to the right place. Today, we are going to talk at length about payroll taxes and how to calculate them.
What are payroll taxes?
Payroll taxes are a group of different taxes that the employer pays from the employee’s salary or wages. Employers pay these taxes to the government on behalf of their employees.
Not only the employers pay taxes from their employees’ wages, but they also obligated to pay their share of taxes as well. The employers’ share of payroll taxes includes Federal income tax, Social Security tax, Medicare tax and more.
What is the payroll tax rate?
The rate of payroll is not fixed and there is no fixed amount of deduction from every paycheck. When you hire an employee, they are required to fill out a W-4 form that contains information such as the marital status, number of children and the total salary of the employee. The amount of taxes to be withheld from each employee depends on the information provided by them in their W-4 forms.
Although the tax rate may vary, the following taxes have fixed rates.
- Social Security Tax: This tax has a fixed rate of 12.4% where the employee and the employer both pay 6.2% each. Also, there is a wage limit as per which this tax will only be applicable to the maximum wage of $128,400.
- Medicare Tax: The fixed rate of this tax is 2.9% that is split evenly between the employer and the employee.
- FUTA: This tax has a fixed rate of 6% and is only applied to $7000 from the total sum that the employee has made in the tax year.
Payroll tax calculator
Now that we know what kinds of taxes are included in payroll taxes, let us explore the method to calculate these taxes.
Easy steps to calculate payroll
- Find the ‘Wage Bracket Percentage Tables’ in the IRS Publication 15-A.
- Review the W-4 form to know the marital status under which the employee files his/her income tax.
- Now you have to calculate the gross wages of your employees in columns A and B. Make sure that your employee’s wages should be more than the amount in column A and less than the amount in column B.
- Subtract the amount in column C and multiply the sum with the percentage found in column D.
- Now recheck the W-4 forms to see if the employee has specifically asked for any other tax being held back from his/her paycheck.
- The final amount is the amount that you need to withhold from your employee’s paycheck.
In case you use QuickBooks for processing payroll and you are having a hard time calculating these taxes, call at QuickBooks payroll phone number and take help from the experts.
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