Payroll Deductions Calculators

how to calculate payroll tax expense

Payroll taxes are taxes levied by federal, state and local governments, paid by an employer on behalf of their employees. The what is payroll expense exact amount is based on a percentage of the salaries and wages of employees and is paid to the Internal Revenue Service .

how to calculate payroll tax expense

In addition to state payroll tax , employers are also responsible for remitting state income tax on behalf of their employees. The day you hire your first employee, you become responsible for payroll tax. Despite the name, payroll tax is not a single tax but a blanket term used to refer to all taxes paid on employee’s wages.

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And we publish OnPay customer reviews if you want to hear what businesses have to say about working with us. If you’re a small business owner trying to figure out how to calculate payroll, you’re not alone. Over six million small businesses in the U.S. are in the same boat as you. They all have fires to put out, employees to pay, futures to plan, and little to no time to grapple with the IRS tax code. When it’s time to record payroll costs on your books, Bench can take care of that for you. Learn more about how we save small business owners hours of admin every month.

Who pays the payroll tax?

The employer is liable to pay the tax to the government on behalf of the employees. This amount is later deducted from the employee compensation.

The form has been redesigned for 2020, with withholding calculated differently. Any W-4 forms completed prior to 2020 can use the old calculation. Before we explain the steps you need to take to calculate and pay taxes, let’s talk about the types of taxes you need to pay.

State and local income tax

Since Aaron completed his W-4 in 2019, we’ll use the following IRS tax tables to calculate his withholding. According to this form, the federal tax you should withhold from his check is $204. Before you can calculate taxes, you’ll need to calculate employee payroll. Want to track every aspect of your business’s financials, from payroll to profit and loss? Check out our list of the year’s best bookkeeping software for small-business owners. Employees do not pay FUTA taxes—these taxes are an employer-paid contribution to state unemployment agencies. You must deduct these taxes from employee paychecks, then remit them to the appropriate government agency on the correct tax-filing schedule.

What is the debit to payroll tax expense?

Because the Payroll tax account is an expense account by definition, a debit entry will increase the balance and thus it means that there are more payroll taxes incurred. The payroll tax account is limited to the employer side and does not consider the employee's taxes payable.

Self-employment taxes has a ton of considerations – consult a tax professional.When you’re lamenting on how do I pay my payroll taxes? There are plenty of self-employment resources to help you along. And luckily, how to calculate payroll taxes is very similar to businesses. Whenever you find yourself asking, “how do I pay taxes for my employees,” you’ll be dealing with tax withholdings. It’s important to note that when beginning to figure out employees’ taxes, paycheck withholdings are different than the money you deduct from employees for payroll tax. Even small businesses with just a few employees are required to calculate and collect payroll taxes.

If you don’t have employees

Alternatively, since hiring outside help can be expensive, payroll software is a solid middle-of-the-road option. If you just hired a new employee, you need to learn how to calculate and pay payroll taxes, which include income, Social Security, and Medicare taxes. You’re also responsible for matching each employee’s Social Security and Medicare tax payments. As an employer, you must withhold payroll taxes from employees’ paychecks. Learn what those taxes are and how to calculate them here. It’s not only time-consuming to manually calculate payroll taxes for each of them, but you are also putting yourself at an increased risk of making a mistake. As the employer, you also have to pay federal and state unemployment taxes.

  • As a business, you are expected to know how to calculate payroll taxes, adhere to payroll tax deposit due dates, and follow tax filing deadlines.
  • FICA is the federal payroll tax paid by the employee and employer that contributes to Medicare and Social Security.
  • You will receive a tracking number to keep for your records.
  • Take a look at the following examples to understand how to calculate FICA and SECA payroll taxes.
  • For example, in Texas you would contact the Texas Comptroller of Public Accounts.
  • All other states have an income tax that you, as an employer, are required to withhold and remit.

On line 1c, enter the other income amount found on Step 4a of the employee’s Form W-4. Divide this amount by the number of pay periods recorded on line 1c and write the amount down on line 1d. Take a look at how FICA works once the employee earns above $200,000. You no longer withhold or contribute Social Security tax. Add the regular Medicare tax rate (1.45%) to the additional Medicare tax rate (0.9%).


Kylie McQuarrie has been writing for and about small businesses since 2014. Currently, she’s’s accounting and payroll staff writer. Her work has been featured on, G2, and Fairygodboss, among others. When you hire an employee, they’ll fill out a W-4 tax form and submit it to you. This particular IRS publication is also called the Employee’s Withholding Certificate. It lists the employee’s tax filing status, dependents, additional income, and other tax allowances. You’ll use this information to withhold the tax amount requested by the employee.

  • Using Worksheet 1 on page 5, we will determine how much federal income tax to withhold per pay period.
  • This calculator uses the redesigned W-4 created to comply with the elimination of exemptions in the Tax Cuts and Jobs Act .
  • The first $137,700 of an employee’s wages are subject to the Social Security tax.
  • Payroll taxes are taxes employers pay per employee determined from an employee’s wage, salary, and tips.
  • The FUTA tax rate is 6% on the first $7,000 of wages paid to employees in a calendar year.

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