Managing a business small, medium, or big requires you to pay your taxes, as well as your employees’ taxes. Managing a payroll can be an arduous and taxing job, no pun intended. There are laws that require us to pay taxes and everyone has to comply with that. But keeping up with the payroll can give many people sleepless nights. There are so many deductions needed to be done, and they have to be exact to avoid confusion and complications later on. State and federal taxes are very strict and you don’t want the IRS pounding on your door because of some mistakes. Make sure that you do your calculations correctly to avoid a mess later on. Keep your payroll records and tax payments as your reference so you have proof of the deductions and payments you have done. Different states have different laws about records; check it out with your lawyer or accountant to make sure.
So just what are payroll taxes? Payroll taxes are the taxes that every business is required to deduct from the employees’ salary and pay to the state and the federal government, you are required to do this on behalf of your employees. Aside from withholding state and federal taxes, social security and medicare taxes are deducted also from the salary as required by law. The business on the other hand must match the amount paid for social security and medicare.
In stating to calculate payroll taxes, each of your employees must complete an IRS form W-4. This form will be used to calculate payroll taxes. In the W-4, you can calculate the amount of the federal income tax, and because most states have income tax structures that are based on the federal taxation system, you may also use this form to calculate the state tax to be deducted from the salary of your employees. Also needed to calculate payroll taxes are the percentage currently used for the social security and medicare. Both the employer and employee split the amount needed to be paid. Whatever is deducted from the employee to pay the social security and medicare taxes, the employer must match that amount.
Aside from those, the law requires the employer to pay federal and state unemployment tax; this is part of the payroll taxes. Federal and State unemployment taxes (FUTA and SUTA) are based on the number of unemployment claims that are filed by employees that you have released or fired. FUTA rates are the same for all states, while SUTA rates will differ from state to state. If your employee earns more than seven thousand dollars per annum, you do not have to pay those taxes anymore.
For some business owners, doing the payroll and calculating payroll taxes just gets in the way of the day-to-day business he or she has to do. That’s why some proprietors get payroll services to do the dirty work for them. But this means more expenses for the company. While for some this is worth the money, small businesses with a small labor force should just do their own payroll. What they get is the luxury of concentrating more on their business without the need to worry about how to calculate payroll taxes. Just remember, always obey the laws so that you do not complicate matters which could end up losing the business.