Calculate your Payroll Taxes

 
Calculate your Payroll Taxes
Specific Payroll Tax Steps
 
If you’re wondering how to calculate your payroll taxes, here is the first information you need to know. Even a business with only a few employees is required by law to calculate and collect payroll taxes. All employers should know how to calculate payroll tax—even if you don’t do the job yourself.
In general, payroll is reported by calculating the gross pay (and various other payroll deductions) to arrive at the net pay. An employer’s gross pay, minus statutory payroll tax deductions and voluntary payroll deductions equals net pay. It seems simple—but this process should be done with complete accuracy. Here are more detailed steps to help calculate your payroll taxes:
  1. Determine an employee’s gross pay (including hourly wages or salary including tips, commissions and any other taxable compensation). Do not include reimbursements for business expenses or mileage.
  2. Multiply the withholding allowances claimed on his or her W4 by the amount of one allowance for the length of the pay period and the filing status. For instance, if an employee’s filing status is single with two allowances claimed and your pay period is weekly, you have 2X. Then, subtract this amount from gross wages. Also, subtract any tax deductions (such as contributions to a tax-deferred retirement plan). The rest is his or her federal taxable income.
  3. The next step is to calculate federal income taxes that need to be withheld. This is determined by using tax brackets with percentages (which increases with income). See the current year’s tax tables to figure out the exact numbers to use.
  4. Determine any state or local income taxes to be withheld. Every state has its own formula, so locate instructions applicable to you.
  5. Next, calculate Medicare and Social Security taxes that should be deducted. These are both flat rate taxes. Multiply gross wages by 1.45 percent for Medicare and 6.2 for Social Security taxes. Please note if his or her annual income has passed the threshold, there is no need to deduct further Social Security taxes. Employers should contribute a matching amount for each tax not deducted from employee pay.
  6. Figure state (SUTA) and Federal (FUTA) unemployment taxes. Both of these are employer paid. Calculate the SUTA tax first, using your state rules.
 
Calculating your payroll taxes is an important responsibility of all employers. To find links to your state tax agencies, visit this site.
 
Feel free to visit the main page we’ve created for Articles on Payroll Services.
 
Modern Business Associates is an HR company that focuses on payroll and HR outsourcing.  We routinely work with clients on calculating payroll taxes. As a Professional Payroll and HR outsource organization, our clients rely on us to help them effectively deal with these kinds of topics.