What is Payroll Tax?
The taxes that both employees and employers pay on salaries, wages, and tips are referred to as payroll taxes. Employers deduct taxes from employee paychecks and send the money to the government. In addition to the employee’s portion of Social Security tax and Medicare taxes (FICA), these taxes also include federal, state income tax, and local income taxes.
How Much is Payroll Tax?
For 2023, the federal payroll tax rates are: Rate of Social Security taxation: 6.2% for employees and 6.2% for employers. 1.45% for the employee and 1.45% for the employer make up the Medicare tax rate. When annual wages exceed $200,000, the employee will pay an additional 0.9% of Medicare.
How to Calculate Payroll Taxes?
Payroll administration, including the computation of payroll taxes, may be done manually by a business when it first begins with a small number of employees. But if the company expands, it will probably become more cost-effective to hire a third-party payroll provider or use software that automates the procedure and grows with the company.
Any business would benefit from knowing the costs involved and the fundamentals of computing payroll tax, if only to accurately plan for payroll. Identifying the portion of an employee’s salary that has to be withheld for income taxes is the first step.
Either the more complex percentage approach or the wage bracket method are used to determine the amount of federal income tax withheld from paychecks. Each calls for details from the Form W-4, Employee’s Withholding Certificate, and the employee’s gross income.
Also, See: Payroll Deductions