How to Calculate Payroll Taxes: Everything You Need to Know

Understanding how to calculate payroll taxes is an significant separate of a occupation. Payroll taxes are a type of use tax that is required by federal law.5 minute read1. How to Calculate Payroll Taxes: Everything You Need to Know
2. What You Will Need for Tax Calculation
3. How to Calculate the Withholding Amount
4. How the Calculation Is Done: Step by Step
5. State and Local Income Tax Withholding
6. FICA Tax
7. Social Security Tax Rate
8. Medicare Tax Rate
9. Self-Employment Tax
10. Other Deductions That Reduce Gross Pay

How to Calculate Payroll Taxes: Everything You Need to Know

Understanding how to calculate payroll taxes is an authoritative separate of running a business. Payroll taxes are a type of employment tax that are required by federal law. Types of payroll taxes include self-employment taxes and Federal Insurance Contributions Act ( FICA ) taxes. Employers are required by police to withhold FICA taxes from their employee ‘s gross wages .
Those who are freelance are required to pay a self-employment tax. however, this can depend on the structure of your business. Any freelance business owner who does not receive a regular wage is legally bound to pay self-employment taxes .
other coarse types of employment taxes can include federal income taxes, union unemployment taxes, local income taxes, state income taxes, and country unemployment taxes.

What You Will Need for Tax Calculation

When you are calculating taxes that need to be withheld, it is important that you have the right data, most of which can be found on your employee ‘s most recent W-4 mannequin that they have completed themselves .
In addition to the W-4 form, there are a few other pieces of information that you will need to make your calculations. This information includes :

  • Each employee’s gross pay for the current pay period.
  • Tax withholding tables for income taxes for the current fiscal year, which can be found in IRS Publication 15-A.
  • The current FICA tax withholding percentages.
  • Social Security’s maximum withholding amount for the current year.

After you ‘ve gathered this data, you should easily be able to calculate payroll taxes .

How to Calculate the Withholding Amount

The sum of taxes that will need to be withheld from an employee ‘s paycheck will vary from employee to employee. Factors that can influence withhold taxes include :

  • Whether the payroll period is biweekly, weekly, semi-monthly, or monthly.
  • The relationship status of the employee.
  • How many tax exemptions the employee has claimed.
  • The employee’s gross pay during the current pay period.
  • How many withholding allowances are being used.
  • Any other amount that your employee has requested to be withheld.

How the Calculation Is Done: Step by Step

Calculating your company ‘s payroll taxes requires following several steps. To get started, you will need the worksheet found in IRS Publication 15-A : employer ‘s auxiliary Tax Guide. The steps for payroll tax calculation are as follows :

  1. Locate the table that matches the payroll period used by your company.
  2. Find the correct column for your employee’s marital status.
  3. In the single section, find the number of allowances.
  4. Find the gross wages section. Wage sections are labeled “over” one wage amount, “but not over” another wage amount. For instance, if your employee’s biweekly wage is $600, this would be over $599 but not over $1691.
  5. Keep looking along the category line until you find the right number of withholding allowances. After you have found this section, you will need to perform two calculations.
  6. Take the amount in Column C and subtract it from gross wages. Next, take this amount and multiply it by the percentage in Column D. The result of this calculation will be your withholding amount.
  7. If your employee has requested additional withholdings, you will add this to the withholding amount to find the grand total withholding.

State and Local Income Tax Withholding

As an employer, you are required to withhold both local and express income taxes from your employee ‘s arrant wages. If your occupation is located in a state with no income tax, such as Florida, you will not have to withhold these taxes .
Calculating the withhold sum for express income taxes follows the same procedure as federal income taxes.


When you calculate either self-employment taxes or FICA taxes, you will use a standard share. FICA differs from other withhold taxes because it is both an employer and an employee tax. This means that both you and your employee will contribute the same amount of FICA taxes .
presently, 7.65 percentage will be withheld from your employees ‘ gross wages, and you will pay an extra 7.65 percentage for each of your employees. The standard FICA percentage is divided between Social Security and Medicare taxes. The share you will be required to pay can change from year to class .

Social Security Tax Rate

The Social Security tax rate for 2017 is 6.2 percentage. This percentage must be withheld from the wages of each of your employees. Employers should withhold and contribute this tax fortune for up to $ 128,400 in earnings. If an employee earns more than this engage capital in crying wages, they should be taxed only on $ 128,400 .

Medicare Tax Rate

presently, the Medicare tax rate for employee wages is 1.45 percentage. Like other types of payroll taxes, employers are required to match this 1.45 percentage Medicare tax. however, there is no wage limit for Medicare taxes .
If a single employee earns more than $ 200,000, there will be an extra 0.9 percentage Medicare tax. This lapp share should be applied to married employees filing jointly who make over $ 250,000 and married employees filing individually who earn more than $ 125,000. Additional Medicare taxes are paid entirely by the employee .

Self-Employment Tax

With self-employment taxes, there is no partake province between employers and employees. A freelance business owner is required to pay the complete sum of both Medicare and Social Security taxes.

Another name for self-employment taxes is the Self-Employment Contributions Act ( SECA ) tax. The 2018 tax rate for self-employment is 15.3 percentage, with 12.4 percentage being paid to Social Security and 2.9 percentage going to Medicare. The 2.9 percentage owed to Medicare taxes takes affect when you earn more than $ 128,400. An extra 0.9 percentage Medicare tax will be levied if your crude wages rise above a certain measure based on your charge condition .

Other Deductions That Reduce Gross Pay

Employers are allowed to provide benefits to their employees that are funded by pre-tax payroll deductions, including :

  • Retirement plan contributions. This can include a 401(k) plan.
  • 403(b) plan contributions for nonprofit or government employees.
  • Flexible spending account contributions, a voluntary program that provides reimbursement for medical expenses.
  • Health savings account contributions, which are similar to flexible spending accounts. The difference is that the money in the account does not roll over between fiscal years.

If you need help with determining how to calculate payroll taxes, you can post your legal want on UpCounsel ‘s market. UpCounsel accepts only the top 5 percentage of lawyers to its locate. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb .

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Category : Finance

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