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Do-it-Yourself Payroll

How do I run payroll for my small business?

As a small business owner, we are guessing that running payroll wasn’t the first thought you had when deciding to launch into business on your own. You were likely focusing on building a business you’re passionate about, finding the right location for it, and other tasks that weren’t payroll related. But payroll is a necessity, and getting it right is important. This article will help you get a handle on how to calculate payroll correctly, and includes some payroll calculators to help you out.

How do I calculate payroll taxes?

Calculating payroll taxes is tricky because business owners need to account for federal, state, and local taxes when preparing employee paychecks. Due to the fact that these tax codes are always changing and updating, payroll unfortunately isn’t a “set it and forget it” task. By using some of the calculators on this page, you will be able to get a better understanding as to what you should be doing when you run payroll.

What Goes Into Calculating Payroll Correctly?

First, let’s get the lay of the land, and understand everything that goes into calculating payroll, whether you’re a sole proprietor and are paying yourself, or if you need to run payroll for numerous employees.

  • Federal taxes: Federal taxes are the taxes withheld from your paycheck that benefit the federal government. Most commonly these taxes include government programs such as Medicare / Medicaid and Social Security. Other taxes you will likely see included are income tax, gift tax, estate tax, and employment taxes.
  • State taxes: In addition to federal income tax, most U.S. states collect a state income tax from employees. You will want to be sure of the state income tax rules in your state because some states have flat tax rates, some have graduated tax rates, and seven states have no income tax at all.
  • Local taxes: Local taxes will be decided by a state, county or municipality. These taxes are used to fund various civic services with garbage collection or sewer maintenance as examples. These taxes can vary drastically based on jurisdiction.

How much federal tax is taken out of an employee’s paycheck?

In the event you get questions from employees or simply need to estimate the impact of federal taxes on the take home pay for a certain position, having more understanding of how much money in the form of federal taxes will be taken out of an employee’s paycheck can be useful. The withholding allowance choice on Form W4 is what will determine how much money will be taken out in taxes. Some people choose to have more taxes withheld so they will receive a tax refund instead of owing on taxes, while others may choose to have more money upfront and aren’t as concerned about a refund or owing money. Another helpful calculator used to determine this is the IRS withholding calculator.

Things to Keep in Mind with DIY Payroll

While these calculators can useful for calculating payroll on your own, there are some other things those who want to take the DIY route to doing their payroll. At first when you think of paying your employees, you are likely focusing on entering their hours or salaried rate and then paying them and calling it a day. Unfortunately, payroll isn’t that simple. In addition to hours and pay rates, you need to calculate and file FICA, state and local taxes (if applicable) for you and your employees. Additionally, if your employees work and live in different states, you’ll need to be aware of state reciprocity rules, because you could have extra taxes that you need to pay.

While this is a short list, it is a time consuming one because tax laws are known to change frequently. If you aren’t staying up to date on tax codes and rates and file payroll incorrectly, you could find yourself paying employees back for missed wages, and worst case, getting audited and having to pay tax penalties.

Important Notes About These Payroll Calculators

Current SurePayroll Customers: These calculators are provided for estimates only, and will not affect SurePayroll account information in any way. You must enter payroll data directly into your SurePayroll account if you would like it processed for an upcoming payroll period. You can log in by clicking the “Sign In” link at the very top of this page. If you have any specific payroll questions, please contact Customer Service.

The information presented is intended for reference only and is neither tax nor legal advice. Consult a professional tax, legal or other advisor to verify this information and determine if and/or how it may apply to your particular situation. SurePayroll, Inc. and its subsidiaries assume no liability and make no warranties on or for the information contained on these payroll calculator pages.

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