Payroll tax calculation
The IRS is very strict on payroll tax and the deduction associated with it. Even a small miscalculation can land an organization in serious trouble with this regulatory authority. So, it is important to maintain proper record of payroll accounts in an organization. The first step to calculating payroll tax is getting each and employee to fill the W-4 form from the Internal Revenue Service. This form aims to calculate the payroll tax depending on the marital status of an employee and the number of dependents. Since many states have payroll structures that are based on the federal system formulated by the IRS, this form helps organization calculate the payroll tax withholding for both federal and state governments.
Payroll Tax Calculation and Process
Payroll tax currently, the social security tax withheld from an employee?s wages is calculated as 6.2% of the total salary. This same amount has to be contributed by the employer, and added to the payroll account of the organization. The wages base for this tax is $76,000 dollars a year, beyond that, taxes need not be deducted from an employee. The same procedure is followed for Medicare taxes, calculated at 1.45% of the employee?s salary. There is no wages base for Medicare taxes and the employee and the employer goes on paying the tax independent of the salary of the employee. The federal Unemployment taxes (FUTA) is also calculated at 6.2%, but an employer can take credit up to 5.4%. The FUTA wage base is $7,000 dollars ; an employee whose wages exceed this amount in a year, stops paying FUTA taxes that year.
The same rules are applicable to State Unemployment Taxes (SUTA) also. These calculation and deduction have to be done accurately to avoid any confusion. Each company must have a payroll account to that these deductions are transferred to and paid to the state and central governments at the end of the year. Payroll processing solution and payroll tax return preparation are available to help business relieve their payroll processing woes and assist with tax compliance procedures. Payroll processing companies offer a tax pay line service through which the customer will receive payroll checks with wage-statements for each pay period. They also provide made-to-order payroll reports. The customers payroll taxes are automatically debited from the account and forwarded to the government. Federal, state and local tax returns are filed with payment, and workers compensation returns are also taken care of with payment. W-2s, W-3s, and local and state annual reconciliations are made out, and customary updates on changes in employment rules are ensured. Some payroll processing service companies allow the customer to design the service by picking the options that best fit the bill.
Overview
Federal payroll tax withheld from an employee \'s and paid bet the employer unclosing federal social security tax and federal Medicare taxes.
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