Payroll Tax Calculations: How to Do It?

Business is a combination of different departments and functions. The most crucial department of any small or large business is the financial department. If you are a small business owner, you can outsource the accountant to make sure they are able to handle the business accounts and maintain the financial statements for you. 

This brings forth the question “how to calculate payroll taxes?” thus, one of the most common questions that every business holder needs to ask before the end of the year. You need to pay the employees, make future plans, and pay the income taxes, and so on. The good news is that once you figure out the tax filings, you will be able to calculate the payroll taxes step by step. 

Things to learn about the Payroll Tax 

Before you can reach the point to run the payroll you need to fill and file the documents. You are responsible for two things; 

• Salary deduction of employees to pay taxes on their behalf

• Pay the payroll taxed on employee’s revenue 

Payroll taxes are eventually recorded in the books. In case if you don’t have employees you still need to remit the payroll taxes for yourself, also known as the Self-Employment Tax. This tax amount to 15.3% of the net business income. Employers usually use virtual payroll services management to handle the deed. 

Types of payroll taxes 

There are two primary categories of payroll taxes. 

• Payroll tax you pay; 

FICA tax that covers social security and Medicare. For an employer’s social security it is 6.2% and for Medicare, it is 1.45%. The same amount goes for the employees. 

FUTA tax is for the unemployment insurance that reaches the amount of 6%. Usually, most employers pay 0.6% only because states have a credit of 5.4%. 

• Payroll tax only collected and remitted:

• Federal income tax
• State and local tax 

The federal income tax percentage 

It is the job responsibility of the employer to withhold the payroll tax vs. income tax on behalf of their employees. You need an employee’s copy of the Form W-4 and the employee’s gross pay. 

Once you have gotten both copies, now determine the calculation method you want to use to pay the payroll tax, so you can opt for two options;

• Wage bracket method 

• Percentage method 

For your ease, the wage bracket method is a straightforward way you can calculate the payroll tax. 

Using the wage bracket method to calculate payroll taxes 

You will need to; 

1. The table corresponds to the employee’s pay period. 

2. Check for any sort of allowances by going through the Form W-4 to determine if the employee is single or married. 

3. Find the gross wage of employees for the pay period in column A but it should be under the amount found in column B. 

4. Find the amount in column C by subtraction. 

5. Multiply the amounts in column C and column D. 

6. Check if the employee has requested any additional tax to be withheld from each paycheck. If yes, then add the final number. 

7. The final amount (in the end result) is the amount you need to withhold from the employee’s paycheck. 

Using the percentage method to calculate the payroll taxes 

It is quite complicated as compared to the wage bracket method. Payroll tax vs. income tax information once collected, then you can withhold the amount from the employee’s paycheck. Then you need to calculate FICA and the amount required to pay on the employee’s behalf and so on. 

When it comes to payroll taxes you need to record the payroll costs on a regular basis to make sure you do not miss out on any amount.