how to calculate payroll tax expense

This is the amount you will deduct from your employee’s paycheck and remit along with your payroll taxes. As an employer, you withhold income tax on behalf of your employees and then remit those taxes quarterly to federal, state, and local tax authorities. EmployeePayEmployee A$1,500.00Employee B$1,200.00Employee C$2,000.00To determine each employee’s what is payroll expense FICA tax liability, multiply their gross wages by 7.65%, as seen below. These are the amounts you withhold from employee wages and send to the IRS. Unlike FICA tax, employers and employees do not share the responsibility of self-employment tax. Instead, the employer is responsible for paying the total 15.3% toward Social Security and Medicare taxes.

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Wage adjustment may be necessary when employees complete Step 4 on Form W-4. To do this, take any additional income that’s not from a second job, divide it by the number of pay periods and add it to the total wages. Next, if the employee is claiming deductionsother than the standard deduction, divide this figure by the number of pay periods and subtract it from total wages. Instead, the easiest way to calculate payroll taxes is to turn them over to a financial expert like an accountant.

Example of how to determine payroll taxes

A portion of the payroll taxes are withheld from the employee’s paycheck, while the other portion is paid by you, the employer. The employee pays federal income tax and state income tax. To keep your business running, you need to have enough money to pay employee wages and cover employment costs, such as payroll taxes. That’s why business accounting includes the liabilities category. It’s a valuable tool that shows you your upcoming expenses. The portion of payroll taxes that the employer withholds on behalf of the employee are liabilities for business accounting purposes. The employer is playing the role of an agent for the government, collecting taxes from employees and remitting them to the state and federal government.

Prepare the journal entry to record the employer’s payroll taxes expense for the week ended June 21 of the current year. If an amount box does not require an entry, leave it blank. There is no employer match for the Additional Medicare Tax.

How to collect employee tax information

All earnings are subject to 8% FICA taxes, 5.4% state unemployment taxes, and 0.8% federal unemployment taxes. In January, gross earnings in Gyro Company totaled $70,000. All earnings are subject to 8% FICA taxes, 5.40% state unemployment taxes, and 0.80% federal unemployment taxes. When building a business, seemingly small mistakes can end up costing a lot. Understanding federal tax rates, post-tax deductions, and how to accurately calculate employer payroll taxes can save time and money.

How do I know how much income tax to withhold from my employee?

All of your employees need to fill out IRS Form W-4. This form determines how much money you need to withhold from your employee’s paychecks. If you’re calculating payroll taxes manually, you can use the withholding tables provided by the IRS. If you’re using payroll software, your payroll service will calculate this amount, and all other payroll taxes, for you.