Tips for Calculating Payroll Taxes

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Each time payroll is processed, it is essential to calculate payroll taxes so that you know the right amount of money that needs to be withheld from each paycheck. These payroll withholdings are paid for state, federal, and local taxes and they can include Medicare and Social Security costs.

Withholdings and Employer Contributions

With both Social Security and Medicare taxes, the costs are withheld from the paycheck. Additionally, the employer is required to match the withholdings and pay the full amount. There are two additional tax burdens carried by the employer: State Unemployment Insurance (SUI) and Federal Unemployment Tax Act (FUTA).

All of the taxes are figured based on the wages earned by each employee. There are specific calculations to figure out the amount that is due. The current rates for 2016 are:Calculating Payroll Taxes

  • 6.2% Social Security for both employees and employers
  • 1.45% Medicare for both employees and employers
  • 2.4% FUTA for employers in California

Once certain thresholds are reached on a year-by-year basis, Social Security deductions end for both the employee and the employer. Regardless of income, the Medicare contributions continue.

Ongoing Adjustments for Tax Rate Changes

It is essential that you stay informed about the percentages, to make adjustments if anything changes from one year to the next. Most small business owners don’t keep up with these types of changes, so they work with a trusted accounting team to stay current with employment tax laws.

Keep in mind that many payroll systems will handle these calculations for you. It is best to use a trusted tool instead of attempting to calculate everything by hand. Using the right tools and having an experienced team to help can reduce the future problems that can occur if payroll taxes are calculated incorrectly.

Even if a software program is used to calculate payroll taxes, it is still important to have a financial professional look over the numbers to make sure the calculations are right. Additionally, the accountant can ensure that the rates are updated each year if there are any changes.

Do you need help with payroll processing? Contact R&R Payroll & Bookkeeping Services for information about our payroll services: (951) 296-0412.