How to Calculate Payroll Taxes?
Calculate Payroll Taxes
Business owners everywhere have a lot of responsibility when it comes to managing the financial details of their businesses. A company has employees, property, liabilities, assets, customers, business partners, suppliers, and other individuals and interests that it must deal with in order to remain in business. One of these issues involves payroll taxes.
If you are starting your own business, or work for a business, then payroll taxes are something you will have to handle. Naturally, anything dealing with taxes is a big deal. Payroll taxes are important because they can get a business in trouble if they are neglected or improperly paid. This article will describe how to calculate payroll taxes correctly, to avoid any possible complications.
How to Calculate Payroll Taxes: What Are They?
Payroll taxes, in short, are taxes the government imposes on the payroll – or overall amount owed to employees of a business. There are two types of payrolls. The first is called withholding, because a certain amount of money is withheld from an employee’s paycheck to cover the taxes owed to the government. This is also known as “pay as you earn”.
The second type of payroll tax involves money that is owed by the employer himself for employing a worker. This can be a fixed rate, or it can be tacked proportionate to the employee’s salary or pay. In other words, payroll taxes combined involve the money owed by a business for employing an employee. It covers the taxes owed by the individual worker to the federal government, as a way of ensuring that the appropriate funds are paid to the IRS by the business on behalf of its employees.
How to Calculate Payroll Taxes: What is Withheld
Payroll tax laws differ all over the world. In the United States in particular, a business is required to withhold federal income tax on the employee’s pay, based on how much the employee is paid. The employer also pays half of the Social Security tax and half of the Medicare tax. The employee pays the other half of each (which together are called the FICA tax). In some states, state income tax may also be required.
To calculate payroll taxes, there are formulas created by the Department of Treasury and the IRS that employers are required to use. For example, employers withhold 6.2% of an employee’s paycheck for Social Security. They must also pay an equal amount, so that the total amount for Social Security is 12.4%. This is up to a “wage base”; in 2009 it was $106,800. That is, once $102,000 is earned during the year, neither the employee nor the employer owe any more tax for Social Security. For 2009, the total amount withheld is $6,621.80.
An employer also owes state and federal unemployment taxes. This is in addition to federal income taxes, which are contained in IRS Publication 15 Circular E. This information and other information about how to calculate payroll taxes can be found with the IRS and other official government agencies online at places such as http://www.irs.gov.
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