Most Popular Posts

How to Set Up a 401k and Avoid Higher Fees There is a disconnect between small businesses and 401(k) plans. According to a recent study by SurePayroll, more than 70 percent of small firms don’t offer them.

How the New Overtime Rules Could Impact Your Business Recently, the U.S. Department of Labor (DOL) issued their Final Overtime Rule that will become effective on December 1, 2016. ​

What’s a Verified Twitter Account and How do I Get One? What do Kim Kardashian, Barack Obama, Martha Stewart, and William Shatner all have in common? They’ve got verified Twitter accounts. ​

6 Inexpensive Ways to Reduce Waste for Your Small Business We all know it’s possible to use waste policies to cut company spending. 3M, for instance, was famously able to save around $500 million just by implementing a more aggressive waste reduction strategy.

3 Ways Every Business Can Help Save the Planet and Benefit Too Every business can see financial benefits from being environmentally conscious, thanks to both savings in your operating costs and consumer goodwill. When customers see that a company is sustainable or otherwise committed to ethical choices, 66% of them are willing to pay more for their products and services. ​

All Fields Required

How Do I Calculate Payroll Taxes? [Update]

Posted On
February 7
By
SurePayroll

Payroll taxes are federal, state and local taxes withheld from an employee’s paycheck by the employer. These taxes consist of income taxes as well as Social Security and Medicare taxes, the latter two often referred to as “the payroll tax.”

Social Security and Medicare taxes are matched by the employer. Two payroll taxes, FUTA (Federal Unemployment Tax Act) and SUI (state unemployment insurance) are paid solely by the employer and based upon employees’ wages and other factors. There are three states where both the employer and the employee contribute to the unemployment tax: New JerseyPennsylvania and Alaska.

Every employee is required to fill out and sign a W-4 form. Federal and state income taxes (and local income taxes where applicable) are calculated based on the employee’s W-4 form. On this form, the employee declares the amount of withholding. The IRS, in turn, provides the income tax calculation based on those declarations. The employee can include more in withholdings than is required by the IRS. State taxes are determined in much the same way. Every individual state’s tax board provides a calculating formula for tax withheld.

To calculate the payroll tax, the employer must know the current tax rates. The Social Security tax rate for employees in 2016 is 6.2%, and the Medicare tax rate is 1.45%. The employer must contribute 6.2% for Social Security and 1.45% for Medicare. After reaching $118,500 in wages, Social Security deductions cease for both employee and employer. This wage base amount is determined on a year-by-year basis. Medicare contributions continue regardless of wages.

As mentioned before, paying a few taxes is solely the employer’s responsibility. The FUTA rate is 6.0%, but a credit of up to 5.4% for SUI taxes can be taken. If eligible for a maximum credit, the FUTA rate will be 0.6%. The wage base for FUTA is $7,000. Payments to FUTA cease for each employee whose wages exceed $7,000 for the year. The SUI tax rate is based on unemployment claim activity by employees who have been terminated.

For help calculating anything on your own we encourage you to use our business calculators for help. They shouldn’t be used to run payroll or your business but can help guide you when making decisions.

Read More: Is It Illegal to Pay Employees Cash?