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The Correct Procedure to Calculate Payroll Taxes

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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.

Calculate Payroll Taxes

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.

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Your Ultimate Guide on How to do Payroll

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There are a lot of officials or professionals who look out for the best methods on How To Do Payroll. For such people, it is important to know that there are three basic options that can be used in doing a payroll. It can be done personally, by taking the services of an accountant or by making the effective use of payroll software. Among all the three options, using payroll software is considered one of the best combinations of cost and efficiency. There are different types of payroll software available throughout the market. Therefore, it is necessary that you remain careful when making your choice. Once you are successful in setting up the software, the procedure of paying the employees would not take more than an hour.

Work Done by Payroll Software

How To Do PayrollThe major tasks carried out by an efficient and cost-effective payroll software are as follows:

•    Calculates the gross pay of the employees

•    Calculates the take-home pay of the employees post FICA and income tax deductions. There are other deductions that the software takes into account like deductions for retirement, child support and health insurance.

•    Pays employees by making direct deposits or by printing out checks.

•    Fills out and even submits required documents for state, local and federal income taxes.

•    Sends electronic payments to tax authorities.

Irrespective of the fact that whether you are making use of a payroll software or any other procedure for doing the payroll, you will have to chuck out a method of keeping a track of the number of hours the employees work so that you can calculate their gross payments.

Keeping a Track of the Work Hours of the Employees

In case you have a small number of employees with minor variations in working hours, you can make use of an excel or Google spreadsheet for keeping a track of the work hours of the employees. However, if you are having a large number of employees with major variations in their working hours, there are various paid and free software solutions that can be used. There is a software called Time Clock Free which enables employees to check out and check in to work through assigned computers. This software might of a good use if you are dealing with a large number of employees. However, if you are looking for top quality customer support and tremendous functionality then you should go for Replicon.

Taking the Services of Full Service Payroll Solutions

Payroll software solutions tend to be of good help in figuring out the amount of money that you need to pay. Nevertheless, it is important for you to keep in mind that necessary forms and payments should not be completed automatically always. This is the reason why it is important to use reliable and effective full service payroll solutions that can handle all sorts of tasks related to payroll preparation. Full service payroll solutions offer the following services:

•    Instant paychecks

•    Completely payroll set up

•    Direct deposit

•    Filing and payment of payroll taxes

•    Error-free payroll taxes and paychecks

•    Live support

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