How to Calculate Payroll Taxes: The Employer’s Guide

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While doing your taxes isn’t easy, they’re even more difficult when you manage your own workforce—or so you’ve heard.

Whether it’s your first year as a small business owner or you’ve been doing this for ages, come tax time, it’s not uncommon to find yourself in a panic. It’s easy to feel like you’re all alone when you’re at the head of a business, but you’re really not.

In the United States, almost every business is a small business (99.9%!), so a ton of average people just like you are wondering how to calculate payroll, too.

We’re here to answer your questions in this easy guide on how to complete payroll taxes, and what you need to file.

Gross Pay

Before you can calculate tax, you need to calculate your employees’ gross pay—their pre-tax salary or hourly wage multiplied by the number of hours they worked in the pay period. Simply keep track of wages on some sort of timesheet, and there’s no guesswork.

How to Calculate Payroll Deductions

After you’ve calculated gross pay, as a business owner, you calculate deductions withheld from your employees’ pay for required taxes and some optional expenses. Here’s the breakdown.

Statutory Deductions

Some deductions are statutory (required by law). These include:

  • Federal income tax withholding (see Publication 15)
  • Social security tax
  • Medicare tax
  • State and local taxes

Voluntary Deductions

There are some deductions your employees can opt into. These withholdings are used to pay for optional benefits, including but not limited to:

  • Company health insurance
  • Provided meals, uniforms, equipment, and such
  • 401(k)’s and other retirement plans

Your employees will mark which deductions they take on their W-4s, filled out at the start of employment.

Pay Stubs

Every pay period, you’ll distribute pay stubs to your employees, which reflect their gross pay, deductions, and their difference, which is net pay.

Company Taxes

Your company owes taxes, too, not just your employees. These include:

  • Employer social security tax
  • Employer Medicare tax
  • Federal unemployment tax (FUTA)
  • State unemployment tax (SUTA)

These taxes you will also need to work out and file. 

Finishing up

That wasn’t too painful, was it? Once you have all the numbers in order, you have only a few more steps to take. 

Filing Your Taxes

How often you’re required to file is going to depend on how many people you employ, but it’s much more often than you may be used to if you’ve never filed as an employer. It’s typically monthly, or even more frequently.

You’ll pay at www.eftps.gov—sign up if you haven’t.

Quarterly, you’ll file form 941, which reports your total taxes owed for the quarter. Yearly, you’ll file form 944 to show how much unemployment tax you owed and paid that year.

Distributing W2’s

At the start of every year, you have to distribute W2s (Wage and Tax Statements) to your employees, so they can complete their personal taxes. www.paystubs.net is a great place to get yours made quickly and accurately.

Get Prepared Today

Now you know the basics of how to calculate payroll taxes. Are you ready to jump (back) in?

It’s understandable if you’re still a bit nervous! That sense of caution is actually good for doing taxes properly, but don’t let it drive you up the wall.

The simplicity of this article should be proof to you that doing payroll doesn’t have to be as difficult as it’s made out to be. You’ve got this, and we’ve got your back.

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