As an employer, it’s up to you to pay and report federal and state taxes for your business and workers. To ensure you’re following correct tax laws, be sure to record all the relevant tax deductions and deadlines.
As a business owner, you must be able to work out and withhold taxes from your employees’ paychecks and remit those taxes to the appropriate government agencies.
Being a trusted provider of CPA services in NYC, we wrote a guide about payroll taxes to help employers out there. Read on to learn about payroll taxes, how to work them out, types of deductions, your obligations as an employer, and who to hire to help with your taxes.
What are payroll taxes?
Payroll taxes are taxes you withhold from your workers’ wages and submit to the government on their behalf. You, as the employer, are accountable for instigating a payroll practice that obeys tax regulations, works out how much to subtract from your workers’ paychecks, credits the right amount of US tax dollars before the deadline, and offers quarterly statements about these tax withholdings.
Formulas to work out net pay and gross pay
Gross pay is the total amount a worker earns before any taxes or deductions are taken out. In other words, it’s the salary you offer a candidate when you onboard them initially. The final amount, post-tax deductions, is the net pay – also called take-home pay. You can calculate the gross pay using the below formula:
Pay rate multiplied by hours worked = gross pay.
If you want to calculate net pay, use this formula:
Gross pay minus payroll tax deductions minus voluntary payroll deductions = net pay.
Payroll deduction types
To understand how much you must deduct from your employees’ salaries every payday period, you need to be aware of every payment you have to make on their taxes. There are two key types of payroll deductions:
Voluntary Deductions
These are deductions your employee selects to have taken out of their salary, for example, health insurance premiums, charitable donations, or retirement plan contributions. Typically, the employee must approve these deductions.
Involuntary Deductions
Involuntary deductions are withdrawals that you (the business owner) are legally obliged to subtract from your worker’s paycheck, including state income taxes, wage garnishments, federal and state income taxes, Medicare tax, and Social Security tax. These deductions are a prerequisite and are demanded by federal or state law or court order.
Employers’ Payroll Responsibilities
As an employer, you must complete various tasks to make sure you’re paying the right amount of taxes and following payroll tax regulations. These duties include:
- Calculating the amount of income tax to deduct from your worker’s paycheck.
- Depositing tax dollars for your employee.
- Paying your portion of payroll taxes.
- Arranging reports for Payable and Receivables Reconciliation.
- Submitting the payroll tax returns.
- Utilizing financial reporting to clarify your payroll expenditures.
- Implementing a fixed employee taxes deposit schedule.
- Filing yearly reports to the Social Security Administration and your workers about employee tax payments.
- Generating quarterly reports concerning taxes you deducted and credited.
Who can help with your payroll taxes?
Paying taxes is usually a laborious, overwhelming process. Happily, there are fully-trained workers ready to take care of your payroll duties on your behalf.
Payroll professional
Payroll professionals assist in helping an expanding business manage most of its payments. Here at Ahad & Co, we process business taxes in NYC and help you navigate the IRS tax code effortlessly. We’ll take away your accounting headaches and fill all payroll records, offer complete tax planning services and consultations, and advise on setting up a new business tax structure.
Payroll clerk
A payroll clerk manages payments by establishing timesheets to ensure they’re paid punctually. Usual duties include:
- Detailing payroll numbers in your organization’s payroll software.
- Deducting staff tax amounts and formulating and allocating manual checks to staff.
- Logging and describing staff payment issues to the HR executive.
When you’re looking for payroll clerk applicants, they’ll need excellent data entry skills and must be able to enter payment and timesheet data accurately.
Payroll director
A payroll director, otherwise known as a payroll manager, helps your admin employees and frequently handles your workers and their payroll. Duties include managing state, federal, and other compulsory tax payments, supervising the complete payroll process, and gathering data concerning which voluntary deductions staff wish to opt in to.
It’s best to recruit a payroll manager when you have a mix of employees who are paid hourly or on a yearly salary and staff based in various states. To help you ascertain the right person for this position, source applicants with good time-management and productivity skillsets.
What type of tax is payroll tax?
Payroll tax is a tax type that business owners must pay to the government based on their workers’ salaries and earnings. These are normally split into two sections:
Medicare tax: This tax type finances the Medicare program. It offers healthcare advantages to eligible people and is 1.45% of the worker’s gross pay without any limit.
Social Security tax: This kind of tax finances the Social Security program, providing disability, retirement, and survivor benefits to suitable individuals, and is 6.2% of a worker’s gross pay (up to a specific limit).
How to calculate payroll taxes
To calculate how much to pay for payroll taxes, you need the below forms:
- State W-4
- W-4: Employee’s withholding certificate
- 1-9: Employment Eligibility Verification
- Direct Deposit Authorization
These documents will assist in working out how much to subtract from workers’ taxes. Deduct voluntary and mandatory withdrawals from your gross pay to calculate your final payroll tax sum.
Why does payroll tax exist?
Payroll taxes help American residents financially. If you’re paying federal payroll taxes, these finances go toward social insurance plans such as Social Security and Medicare.
The majority of local and state income taxes fund public expenses such as health care services, education, public employee wages, city construction, local parks, as well as other profitable development endeavors.
Final thoughts
Take your time working out your organization’s payroll taxes so that you know you’re deducting the correct amount from workers’ salaries. Hiring a tax professional, such as Ahad&Co ‘s accountant in NYC, to help oversee your payroll tax can be beneficial, as they offer professional knowledge to ensure you stay compliant with tax regulations and laws.
Also, availing business tax services is time-saving. Our business tax accountant in NYC calculates your payroll taxes, fills out tax forms and stays on top of tax deadlines so you don’t have to. Hiring a professional gives you peace of mind, saves time and money, and guarantees you comply with all tax regulations and laws.
