The IRS tends to be very strict with payroll tax as well as deductions. An organization can land into serious trouble even if there is a small miscalculation of the payroll tax. Therefore, it is quite important to keep careful records of the payroll accounts of an organization. There are a number of important steps that need to be followed in calculating the payroll taxes in the correct manner. There are companies that recruit professionals having special skills and knowledge in calculating payroll taxes only to avoid major complications. If you wonder how to calculate payroll taxes then you need to read the matter provided below.
Filling in and Submission of W-4 Form
The very first step of calculating payroll taxes is getting each and every employee of the organization to fill in and submit the W-4 form available from the IRS or Internal revenue service. The W-4 form aims towards calculating the payroll taxes on the basis of the marital status of the employee and on the number of dependants. This form is of good help for organizations to Calculate Payroll Taxes withholding for both state and federal governments. This is because most states possess payroll structures based on the federal system initiated by the Internal Revenue Service.
Major Taxes and their Wage Bases
At present, the social security taxes which are withheld from wages of all the employees are calculated as 6.2% of the total salary of an employee. The same amount is required to be provided by the employer as well. The total amount is then added to the payroll calculation of a company. Wage base for payroll taxes is $76,000 on an annual basis. Employees with wages beyond $76,000 per year would not have to pay payroll taxes. The same process is followed for the Medicare taxes which are calculated at 1.45% of the total salary of an employee. Medicare taxes do not have any wage base and both the employer and the employee continue paying taxes irrespective of the amount of salary received by an employee. FUTA or Federal Unemployment Taxes are calculated at 6.2%, however, an employer has the flexibility of taking credit up to 5.4%. Wage base for FUTA taxes is $7000. An employee whose salary exceeds this base within a year does not pay FUTA taxes in that particular year. State Unemployment Taxes are also deducted by following the same rules.
The Importance of Calculating Payroll Taxes Accurately
The deductions and the calculations that have been mentioned above need to be done in an accurate manner. Accuracy is quite important in calculating payroll taxes because this helps in avoiding all sorts of confusions. It is necessary for every company to possess a payroll account to which the deductions and the calculations can easily be noted and transferred. This is important for the right and the timely payment of taxes to the central and the state governments at the end of the year.