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Payroll tax is something that every employer should be familiar with. Payroll tax refers to the taxes that employers are required to pay on behalf of their employees, either by deducting from the employees' salaries or by paying on the expense of the business.
Which Taxes Make Up Payroll Tax?
A payroll tax is made up of several different kinds of taxes, or withholdings. As an employer, you would be responsible for withholding federal income tax, 6.2 percent of the Social Security tax, and 1.45 percent of the Medicare tax. In some states, employers are also responsible for withholding state income taxes and city or county income taxes as well. Employers also must pay both state and federal unemployment taxes.
Non-Required Payroll Tax
Employers are allowed to withhold auxiliary payroll taxes that are not required by the government, but only with the express approval of the employee. These taxes go towards paying for selected benefits based on the desire of the employee including: health insurance premiums, life insurance premiums, money toward a retirement plan/investment, and other work-related expenses such as meals or uniforms.
How to Report Payroll Tax
Once you have deducted payroll taxes, you will need to report them appropriately and in a timely fashion. You will be able to do this by filling out various tax return forms on the federal level, and the state level as well if your state requires this kind of payroll tax. These forms include the employer’s quarterly payroll tax return (federal Form 941), the Annual Return of Withheld Federal Income Tax (federal Form 945) and the Wage and Tax Statements (federal Form W-2).
How to Calculate Payroll
Payroll is based on net pay which is calculated by a simple formula of calculating gross pay and payroll deductions. These payroll deductions must be carefully calculated to avoid errors in accounting that could hurt you and your business. The formula used to calculate net pay is as follows: net pay equals employee’s gross pay minus payroll tax deductions (both required and non-required). It is important that you make no mistakes in calculating an employee’s net pay.
Pay Withheld Payroll Tax
As an employer, one of your priorities should be paying all withheld taxes to the federal and/or state government. Employers who fail to do this will receive a sizable penalty from the IRS in the form of a Trust Fund Recovery Penalty. If the federal government deems you responsible for failing to pay withheld payroll taxes or for not collecting these taxes in the first place, you will be responsible for paying 100 percent of the amount of taxes owed plus interest. This can be financially detrimental to your business, so do everything within your power to avoid such a situation.
Which Taxes Make Up Payroll Tax?
A payroll tax is made up of several different kinds of taxes, or withholdings. As an employer, you would be responsible for withholding federal income tax, 6.2 percent of the Social Security tax, and 1.45 percent of the Medicare tax. In some states, employers are also responsible for withholding state income taxes and city or county income taxes as well. Employers also must pay both state and federal unemployment taxes.
Non-Required Payroll Tax
Employers are allowed to withhold auxiliary payroll taxes that are not required by the government, but only with the express approval of the employee. These taxes go towards paying for selected benefits based on the desire of the employee including: health insurance premiums, life insurance premiums, money toward a retirement plan/investment, and other work-related expenses such as meals or uniforms.
How to Report Payroll Tax
Once you have deducted payroll taxes, you will need to report them appropriately and in a timely fashion. You will be able to do this by filling out various tax return forms on the federal level, and the state level as well if your state requires this kind of payroll tax. These forms include the employer’s quarterly payroll tax return (federal Form 941), the Annual Return of Withheld Federal Income Tax (federal Form 945) and the Wage and Tax Statements (federal Form W-2).
How to Calculate Payroll
Payroll is based on net pay which is calculated by a simple formula of calculating gross pay and payroll deductions. These payroll deductions must be carefully calculated to avoid errors in accounting that could hurt you and your business. The formula used to calculate net pay is as follows: net pay equals employee’s gross pay minus payroll tax deductions (both required and non-required). It is important that you make no mistakes in calculating an employee’s net pay.
Pay Withheld Payroll Tax
As an employer, one of your priorities should be paying all withheld taxes to the federal and/or state government. Employers who fail to do this will receive a sizable penalty from the IRS in the form of a Trust Fund Recovery Penalty. If the federal government deems you responsible for failing to pay withheld payroll taxes or for not collecting these taxes in the first place, you will be responsible for paying 100 percent of the amount of taxes owed plus interest. This can be financially detrimental to your business, so do everything within your power to avoid such a situation.
