How to Pay Payroll Taxes
Add up your employee’s total compensation., Calculate federal income taxes., Calculate state income taxes., Estimate the amount of Social Security and Medicare taxes., Calculate your unemployment tax.
Step-by-Step Guide
-
Step 1: Add up your employee’s total compensation.
For purposes of payroll taxes, gross wages generally include all salaries, bonuses, commissions, and fringe benefits.
Basically, it includes all pay you give to an employee for their services.However, payments for accident or health insurance plans are not considered wages for purposes of federal income, Social Security, Medicare, and FUTA taxes.
The rules are more complicated if you offer employees a 401(k) plan.
See page 40 of IRS Publication 15 (2017). -
Step 2: Calculate federal income taxes.
You must withhold and then deposit federal income taxes from your employees' paychecks.Accordingly, you must calculate how much to withhold, which will depend on how much they make.
Find Publication 15, Employer's Tax Guide.
As an example, imagine you have one employee who you pay $500 a week.
One easy way to calculate the amount of withholding is to use the wage bracket tables on pages 47-66 of Publication
15.
Take out the employee’s W-4, which you should have on file.
This form should list the number of claimed allowances and whether the employee is single or married.
On the wage bracket table, a single person making $500 a week with two allowances must have $37 withheld.There are wage bracket tables for daily, weekly, biweekly, and monthly pay periods. , You also need to withhold and deposit state income taxes.
The amount you must withhold will vary depending on your state.
Contact your state’s Department of Revenue for more information on how to calculate the withholding amount. , You need to withhold and deposit taxes for both Social Security and Medicare, which are collectively called “FICA” taxes.
You also need to contribute a matching portion yourself as the employer.As of 2017, the Social Security tax rate is
6.2% for both the employer and employee.
This tax is applied only to the first $127,200 of wages.For example, if your employee makes $500 a week, then you will withhold a total of
12.4%.
As of 2017, the Medicare tax rate is
1.45% for both the employee and employer.
In total, you must deposit
2.9% of each employee’s wages.
This tax applies to all wages.
There is also an additional Medicare tax of
0.9% for high earners.
It kicks in on income in excess of $200,000 for those who are single or $250,000 for those who are married filing jointly.Consult with your company’s accountant if you think this tax is applicable. , As an employer, you pay this tax from your own funds.
You don’t withhold anything from your employees.You will pay two unemployment taxes—Federal Unemployment Tax (FUTA) and State Unemployment Tax (SUTA).
In 2017, the FUTA tax rate is
6.00%.
It applies to the first $7,000 of wages for each employee each year.Also calculate your SUTA, which you can claim as a credit against your FUTA up to
5.4%.
Contact your state’s Department of Labor to figure out how to calculate your SUTA. -
Step 3: Calculate state income taxes.
-
Step 4: Estimate the amount of Social Security and Medicare taxes.
-
Step 5: Calculate your unemployment tax.
Detailed Guide
For purposes of payroll taxes, gross wages generally include all salaries, bonuses, commissions, and fringe benefits.
Basically, it includes all pay you give to an employee for their services.However, payments for accident or health insurance plans are not considered wages for purposes of federal income, Social Security, Medicare, and FUTA taxes.
The rules are more complicated if you offer employees a 401(k) plan.
See page 40 of IRS Publication 15 (2017).
You must withhold and then deposit federal income taxes from your employees' paychecks.Accordingly, you must calculate how much to withhold, which will depend on how much they make.
Find Publication 15, Employer's Tax Guide.
As an example, imagine you have one employee who you pay $500 a week.
One easy way to calculate the amount of withholding is to use the wage bracket tables on pages 47-66 of Publication
15.
Take out the employee’s W-4, which you should have on file.
This form should list the number of claimed allowances and whether the employee is single or married.
On the wage bracket table, a single person making $500 a week with two allowances must have $37 withheld.There are wage bracket tables for daily, weekly, biweekly, and monthly pay periods. , You also need to withhold and deposit state income taxes.
The amount you must withhold will vary depending on your state.
Contact your state’s Department of Revenue for more information on how to calculate the withholding amount. , You need to withhold and deposit taxes for both Social Security and Medicare, which are collectively called “FICA” taxes.
You also need to contribute a matching portion yourself as the employer.As of 2017, the Social Security tax rate is
6.2% for both the employer and employee.
This tax is applied only to the first $127,200 of wages.For example, if your employee makes $500 a week, then you will withhold a total of
12.4%.
As of 2017, the Medicare tax rate is
1.45% for both the employee and employer.
In total, you must deposit
2.9% of each employee’s wages.
This tax applies to all wages.
There is also an additional Medicare tax of
0.9% for high earners.
It kicks in on income in excess of $200,000 for those who are single or $250,000 for those who are married filing jointly.Consult with your company’s accountant if you think this tax is applicable. , As an employer, you pay this tax from your own funds.
You don’t withhold anything from your employees.You will pay two unemployment taxes—Federal Unemployment Tax (FUTA) and State Unemployment Tax (SUTA).
In 2017, the FUTA tax rate is
6.00%.
It applies to the first $7,000 of wages for each employee each year.Also calculate your SUTA, which you can claim as a credit against your FUTA up to
5.4%.
Contact your state’s Department of Labor to figure out how to calculate your SUTA.
About the Author
Douglas Adams
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