If you have employees, you’re required to pay a payroll tax. You’ll be responsible for deducting taxes from employee wages for them and paying your own taxes for each of your employees. The two payroll taxes that you’ll be looking at are the FICA payroll tax and the FUTA payroll tax. Let’s take a look at both of them.
First, we’ll look at how you need to calculate your FICA taxes. FICA stands for Federal Insurance Contributions Act. FICA taxes are used for Social Security and Medicare. This tax is shared by you and your employees. The employee will pay half and you, as the employer, will cover the rest.
The employer is liable for 6.2% of social security and 1.45% of Medicare. Your employees will owe the same amount. Make sure you’re collecting this amount from their paychecks to cover their tax portion. The total tax should be 15.3%. However, if your employees make over $200,00, there is an additional Medicare tax of 0.9% that needs to be withheld.
You will also be responsible for paying a FUTA tax. FUTA is used for your unemployment insurance. The FUTA tax is 6%, however, it’s likely that your state has a 5.4% credit. This means you’re only responsible for paying 0.6% for the FUTA tax. Make sure to check what your individual state policy is so you’re paying the correct amount.
Remember, there are also state and local payroll taxes to consider. You’ll need to at your local payroll tax rules to determine what you and your employees own on this front.
Keeping track of taxes and payroll manually can be an arduous and archaic way to handle payroll. Instead, you can use a reporting tool to make things much easier. A payroll reporting tool can keep things in order, automate a lot of tasks, take care of calculations, and reduce the risk of error. Start using a payroll reporting tool in your business if you want to make tax season much easier.