Payroll taxes are the percentage withheld from an employee’s pay by an employer who pays to the government on behalf of the employee. This tax is basically based upon the wages, salaries and tips that are paid to the employees on the services rendered. Additionally, these taxes are used for the social insurance programs consisting of Social Security and Medicare. Mostly, the employees pay almost the entire payroll taxes to help them split the burden with the employees. Many users might get confused between the federal and income tax even though both are taken out of employees’ pay. 

 

The difference between payroll taxes and income taxes is that payroll taxes fund specific social programs. Whereas income taxes go to the U.S. Treasury’s general funds. Also, remember that every worker pays a flat payroll tax rate, while income taxes vary depending on the earning of an employee. To get a better experience, Updating QuickBooks Payroll Tax Table will be the best solution. Read the entire blog for a better understanding of the Payroll Taxes.

 

Looking for the expert’s guidance to know how to calculate Payroll Taxes? Well, if that’s the case, then don’t worry and consult our experts to get all answers to your queries. 

 

Payroll Taxes: How Should You Begin?

There are two different categories in which you can categorize Payroll Taxes which are as follows:

  • Payroll Taxes that come from your own pocket.
  • Another one is which you collect from the employee’s paychecks and then remit to the govt.

Payroll Taxes that come out of your pocket:- 

 

  • FICA Tax:- FICA tax is the tax that covers both Medicare and Social Security. The cost of the tax would be shared by the employer and employee. For that, the employer portion is 6.2% for social security and 1.45% for Medicare. Also, you’ll collect and remit the same amount from your employees. 
  • FUTA Tax:- This type of tax basically covers unemployment insurance, and the total amount to be paid will be 6%. However, most states only have to pay 5.4% credit, meaning most employers only pay 0.6%. 

 

Here are the following Payroll taxes that you have to collect and remit:

  1. Federal income taxes
  2. State and local taxes

 

We’ve gone over both taxes thoroughly, starting with federal income tax withholding, which is one of the most popular.

 

What Percentage Of Federal Income Tax Is Withheld?

Being an employer, you withhold income tax on behalf of your employees and then remit those taxes quarterly to federal, state, and local tax authorities. To calculate how much of your employee’s federal income tax to withhold, you require a copy of the Form W-4, as well as your employee’s gross pay. After that, you need to look for the method that you want to use to calculate the withholding. Mainly, two options are available: the wage bracket method and the percentage method. The wage bracket method is simpler to calculate payroll tax between the two.

 

What should you do to Calculate Federal Income Tax Withholding With The Wage Bracket Method?

 

  • Initially, look for the tables marked as “Wage Bracket Percentage Method Tables” in the IRS Publication 15-A. 
  • Now, check the employee’s W-4 form to see if they are married or single, and how many allowances they have claimed.
  • Then, in columns A and B, find the employee’s gross wage for the pay period. Make sure the wage is greater than the amount in column A but less than the amount in column B. Subtract the amount in Column C from the total.
  • Multiply the result by the percentage in Column D to get the final result.
  • Additionally, you must verify form W-4 to see if the employee wants additional taxes deducted from each paycheck. If they do, you must include that amount in the total.
  • The amount you must withhold from the employee’s salary for that pay period is determined by the ultimate outcome.

 

After determining how much income tax to take from your employees’ paychecks, you must determine how much FICA to withhold and how much you must pay on their behalf.

 

Steps To Calculate FICA

FICA stands for Federal Insurance Contributions Act, which is required to pay for programs like Social Security and Medicare. The employee needs to pay 50% of their paycheck when funding FICA. Furthermore, the company deducts 50% of your earnings. Therefore, you must withhold and pay the amount that your employee is responsible for from their paycheck and remit that money on their behalf as the employer.

 

What should you do to Calculate FICA Payroll Tax?

 

For Social Security withholding

To figure out how much you should withhold from your employee’s Social Security, multiply his or her gross income for the current pay period by the current Social Security tax rate (6.2 percent ). This is the amount you’ll deduct from an employee’s pay and remit with your payroll taxes.

 

Medicare withholding

You need to multiply your employee’s gross pay by the current Medicare tax rate i.e (1.45%) to calculate Medicare withholding.

 

Employer matching

You must match what your employees pay in FICA taxes as an employer. In this case, you would also have to pay $310 in Social Security taxes and $72.50 in Medicare taxes.

 

Here’s How To Calculate FUTA

FUTA stands for Federal Unemployment Tax Act that is required to pay for state unemployment agencies. On the first $7,000 in wages paid to employees in a calendar year, the FUTA tax rate is 6%. However, because each state receives a credit to cover the remaining 5.4 percent of FUTA payments, employers’ actual rate is 0.6 percent.

 

Summing It Up!!

Hopefully, we assure you that this blog will help you to calculate payroll taxes for small businesses. If you want to get the latest updates on payroll taxes, you must do the QuickBooks Payroll Tax Table Update. For any further query, feel free to contact our experts.