Paying Payroll Taxes: What Business Owners Need To Know

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Did you know that $1.1 trillion was raised by federal payroll taxes last year?

When it comes to the responsibility of paying payroll taxes as an employer, there are several essential factors that you need to understand to file affectively. That’s why today, we’ve created a complete guide to help you better understand how to go about paying payroll taxes as a business owner. Keep reading to learn more!

Business Tax payroll taxes

What Are Payroll Taxes?

Payroll taxes on the amount for the employer pays on the salaries of their employees. Payroll taxes are used to finance Medicare and Social Security.

The amount that’s collected from payroll taxes goes to federal, state, and local government entities. On the paystub of your employees, these deductions will be shown as MEDFICA and FICA. 

Business Tax payroll taxes

Who Pays Payroll Taxes?

As an employer, you pay an estimated 7.65% of payroll taxes. The other percentage is taken out of the pay of your employees.

As an employer, you are responsible for:

  • Payroll tax returns
  • Paying your share of payroll taxes
  • Depositing the tax dollars at the government is owed from the amount is collected from the paychecks of your employees
  • Greeting reconciliation reports
  • Create financial reporting for payroll expenses

Companies also need to pay a portion of payroll taxes. These taxes are an added expense that’s put on top of the gross pay of your employees. Let’s take a closer look at the portion of payroll taxes that you are responsible for playing as an employee: 

  • Federal unemployment taxes
  • State and unemployment taxes
  • Medicare taxes
  • Social Security taxes

As an employee, you have a legal requirement to file your payroll tax reports with your local and state agencies.

Business Tax payroll taxes

How to Calculate Payroll Taxes

If you don’t understand how much of your employee’s gross pay to withhold for federal income tax, you’ll need to have access to their gross pay, as well as the W-4 form.

After you have access to this information, you’ll need to calculate how much you have to withhold. There are two different methods that you can use for calculating how much you should withhold for payroll taxes. You can choose between the percentage method and the wage bracket method.

Wage Bracket Method

Using the IRS publication 15-A, you should find a table that’s marked “wage bracket percentage method table.” You should use this table to correspond with the pay period of the year employee. 

After you found the wage bracket table, take a look at your employee’s W-4 to see if your employee is filing their income tax is single, married, and identify any allowances that they’re claiming on your taxes.

You can identify the gross pay of your employee for the pay. You’re calculating in Column A and Column B. Subtract this is mount from the number that you find in Column C.

After you’ve subtracted, you should take your result and multiply that by the percentage that’s located in Column D.

Once you’ve multiplied the percentage from Column D, take a look at your employee’s W-4 to see if there are any other taxes that should be taken out of the paycheck. If there are additional taxes that should be with health, add this number to the number that you got from multiplying in Column D.  

The last number that you get is the dollar amount that you should withhold from the paycheck of your employee.

What to Keep in Mind When Filing Payroll Taxes

As you’re filing payroll taxes, there are several essential factors that you need to keep in mind.

There are four methods that you can use to transfer tax payments for federal tax deposits electronically. These methods are:

  • Ask the financial institution your company uses to initiate an ACH credit payment
  • Use the treasury department’s free electronica federal tax payment system online
  • Ask your companies tax professional to make the payment for your company
  • In unique situations, you can ask your company’s financial institution to make a wire payment for the payroll taxes

You should also be aware of the legal holidays. If the day that you’re required to make a task deposit falls on a holiday, you have until the end of the following business day to make your payment.

Also, if the day that your deposit is due happens to fall on a non-business day, you have until the end of the following Monday to pay your deposit. A business day is any day of the week besides a legal holiday, Saturday, or Sunday. However, holidays celebrated in your state do not delay the due date of your payment.

Payroll Tax Obligations

No matter the size of your business, if you have employees, you are legally required to withhold payroll taxes and the checks of your employees. By not withholding money from the checks of your employees, your business could be faced with penalties and hefty fines. 

That’s why it’s essential for you to accurately calculate the amount of payroll taxes that the federal government is owed. Plus, you’ll also need to make sure that you pay the payroll taxes on time to avoid more substantial fines.

Paying Payroll Taxes: Understanding Your Responsibilities

As a business owner, understanding the responsibilities that you have for paying payroll taxes is required for you to be compliant with federal and state laws.

Are you looking for a professional tax consultant to help your small business be compliant with payroll tax laws? Click here to contact us today. 

Managing Partner of Silver Tax Group, author of the book “Stop the IRS”. Practicing a variety of tax issues, regulations, laws and rights. Specializing exclusively on tax matters involving IRS audits, negotiation, settlements & compromises.

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