How to Calculate Your Payroll Tax Taxes: 4 Helpful Tips

pocket watch that shows tax time

If you’re a business owner, then you’re already familiar with payroll taxes. For people who are thinking of opening a business, payroll taxes are those taxes that take a percentage of the salary you pay to your employees. There are two main kinds of payroll taxes, those that are taken out of the employee’s salary, and those that you as an employer have to pay according to the salary you provide your employees with. Calculating payroll tax taxes can be quite confusing, especially if you’ve never done it before. That’s why we thought we would provide you with 4 useful tips on how to do it.

4 Tips on How to Calculate Payroll Tax Taxes

1. Consider Social Security Withholding

The first thing you need to know about payroll tax taxes is the fact that they also include Social Security programs. As you might already know, Social Security is a program that helps employees with their retirement income. This program gets funds from payroll tax withholdings, which is why you have to calculate it according to each employee’s salary. Currently, the Social Security withholding takes 6.2% of the total salary. If someone earns more than the wage base limit ($118,500), they don’t have to pay this tax anymore.

2. Think About Miscellaneous Deductions

As an employer, you might want to offer your employees certain benefits. Deductions out of the payroll usually fund these benefits. One example of an extra benefit is a health savings account which helps employees save money for health purposes. A FSA (health flexible spending arrangement) ensures that employees will be reimbursed by the employer for expenses that have to do with their health. In the case of a FSA, not only employees are expected to contribute, but also employers in some cases. However, this is mostly a flexible agreement between the two parties.

3. Don’t Forget About the Unemployment Taxes

When it comes to payroll tax taxes, the employer is the one who has to pay the unemployment taxes. These taxes are a combination of a federal tax system and a state program. First of all, you should pay the state tax. The federal one is 6% of the first $7,000 your company pays to an employee. However, if you’ve already paid the state tax, there’s a credit that your business can take for the federal payroll taxes. This credit is of 5.4% at most, which means that you would end up paying only 0.6% in the end.

4. Keep in Mind the Different State Guidelines

If you have employees from different states, you’re going to have to pay attention to the respective state’s guidelines when it comes to calculating payroll taxes. The way you calculate taxes by state doesn’t differ that much from the way you calculate federal ones. The only difference is that states have their own payroll tax rate. In order to find out what the tax rate is in a respective state, you have to check with the Department of Revenue or Taxation of that state.

We hope these tips on how to calculate payroll taxes will prove useful to you the next time you have to go through this process.

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Author: Amanda Knowles

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