Ultimate Payroll Tax FAQ

Payroll-TaxYour business payroll tax accounts are an important part of your company’s finances and must be properly managed. Whether you run a small business with few employees or a large one with many, accurately accounting for payroll taxes ensures that you can meet your tax obligations on time. Payroll taxes can be complicated, though, and many business owners find themselves with questions about how it all works. At Ignite Spot, we’re here to provide the answers you need.

What Is Payroll Tax?

Payroll taxes are financial obligations imposed on workers and their employers. Businesses with employees are required to withhold money from the wages of their workers to pay federal and state income taxes as well as Social Security and Medicare taxes. The withheld taxes are called payroll taxes. You as the employer must also contribute to payroll taxes.

What Are the Current Payroll Tax Rates?

Current payroll tax rates for Social Security are 12.4%, split evenly between the employee and employer. The tax rate for Medicare is 2.9%, which is also split between the company and the worker. And the federal unemployment tax is currently 6%, though tax credits usually significantly reduce this amount. State payroll tax rates vary by state.

How Much Does an Employer Pay in Payroll Taxes for an Employee?

An employer will need to pay a 6.2% Social Security tax and a 1.45% Medicare tax on each employee’s wages, matching the percentages that must be withheld from workers’ earnings. Employers also must pay federal and state unemployment taxes; the federal tax rate usually works out to 0.6% of all taxable wages after federal tax credits are applied, while state business payroll taxes will vary.

How Do I Calculate My Employees’ Payroll Taxes?

You’ll need three things to figure out an employee’s payroll taxes. First, you’ll need the amount of the worker’s taxable wages for the pay period. Second, you’ll need to look at the worker’s W-4, which will show their number of withholding allowances. Then, you’ll need to consult the IRS worksheets and withholding tables in Publication 15 to find the amount to withhold for federal income taxes. Depending on your state and municipality, you may need to do a similar process to figure out state and/or local taxes. You’ll also need to factor in the amount due for Social Security and Medicare, which take 6.2% and 1.45% of the worker’s income respectively.

When Should Payroll Taxes Be Paid?

When you run a business, taxes aren’t just a once-a-year thing. In face, most businesses will need to deposit tax payments to the IRS either monthly or semiweekly. You’ll also need to file quarterly tax returns as well as providing other documentation as required by the IRS deadlines. State tax payment deadlines will often follow the IRS’s schedule, but be sure to double-check this with your state taxation authorities.

How to Pay Payroll Taxes to the IRS

For federal taxes, payments must be made electronically through the Electronic Federal Tax Payment System, or EFTPS. This is a free method of paying online courtesy of the U.S. Department of Treasury. On the state level, the method of paying and accounting for payroll taxes varies, although some states require electronic filing as well.

What’s the Best Way to Handle Payroll Taxes?

All business owners need to decide for themselves how to do payroll taxes. One way is to hire a virtual bookkeeping service such as Ignite Spot. With our outsourced accounting service, there’s no need to worry about how to pay business payroll tax. Our firm offers payroll services that will do it for you. We’ll calculate your business payroll tax, which is derived from your employees’ gross pay, their state, federal, and local taxes (where applicable), and their Social Security and Medicare deductions, also known as the Federal Insurance Contributions Act, or FICA, deductions. We’ll also handle accounting for payroll taxes that your company needs to pay and making sure that all payments and tax filings are handled professionally and promptly. Contact us today to find out more about our services.

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Written by Eddy Hood