Ultimate Guide To Payroll – Part 3
Welcome to Part 3 of our series on Business Payroll. This week we will discuss payroll taxes, from calculating to remittance, this article will help you understand your responsibilities as an employer. If you missed Part 1 or Part 2 you can find them here.
Calculating Payroll Taxes
You are required to withhold payroll taxes from employees’ paychecks and pay any applicable federal, state and local taxes.
Federal taxes include the following:
- Federal Insurance Contributions Act (FICA) – (half paid by employer, half paid by employee)
- Federal Unemployment Tax Act (FUTA) – (paid by employer)
- Federal income tax (paid by employee)
State unemployment taxes are mostly the responsibility of the employer.
At the local level, there are certain payroll taxes that are specific to your municipality or township, so be sure to always check your local regulations.
Determine Taxable Workers
First, you’ll need to determine the amount of taxable workers you employ. In most cases, W2 employees are subject to payroll taxes and withholding while 1099 independent contractors must pay their own taxes.
Know Current Tax Rates
In order to calculate your payroll tax, you must know the current rates. Keep in mind that whatever the employee puts on their Form W-4 would impact how much or how little their earnings are taxed.
Here are some federal numbers:
Currently, the Social Security tax rate for employees is 6.2 percent of the employee’s gross pay. As the employer, you match what the employee pays making the total rate 12.4 percent.
State unemployment rates vary widely based on your state and your type of business.
- The Social Security taxable wage base is $132,900.
- The Medicare tax rate is 1.45 percent of the employee’s gross pay.
- The FUTA tax rate is 6.0 percent of the first $7,000 you pay in wages to an employee.
- The Self-Employment Contributions Act (SECA) tax rate is 15.3 percent. Those who are self employed must pay both employee and employer rates.
When hired, employees must fill out the required Form W-4, which will determine their state and federal taxes. The employee’s filing status and number of qualified allowances are used to calculate the amount held from their pay.
Forms 940, 941, 943 or 944 are used to pay federal withholding on payroll taxes.
The employer and employee each pay half of the FICA (Federal Insurance Contributions Act) tax, which funds Social Security and Medicare. To calculate the amount to withhold from your employee’s paycheck, and how much you will pay, multiply your employee’s gross wage payment by the applicable tax rate.
As an employer, you are required to pay the FUTA (Federal Unemployment Tax Act) tax if you pay wages totaling at least $1,500 per quarter, or if you have at least one employee on any day for 20 weeks in a calendar year, regardless whether or not the weeks are consecutive.
Hiring a Payroll Company to Help
Setting up and managing payroll is a huge task and expense. The added pressure of doing everything properly to ensure compliance can make it overwhelming. Thankfully, there are many options available to help. A payroll company such as Alron Payroll, Inc. can do all the hard work for you, so you can focus on other business aspects—like hiring great people, and promoting your product or service. Here are some of the benefits of hiring a payroll provider:
- Saves time and effort
- Ensures compliance
- Gives you peace of mind
Here at Alron Payroll, Inc., a subsidiary of Alron Enterprises, Inc., we are committed to providing exceptional service to meet all of your payroll and tax remittance needs. If you have further questions on payroll, simply contact us, and we’d be happy to discuss them and provide you with the information you need. You can always trust our payroll specialists to go above and beyond in providing superior services and customer care. Don’t hesitate to contact us today. We look forward to working with you!