How you can calculate payroll? If you are looking for this over the internet, then you are in the right place. Here we are going to discuss everything about payroll tax and other important relevant factors.

In the U.S., FICA (The Federal Insurance Contribution Act) uses the collected amount to fund retirement benefits, old age survivors, disability, nursing home services, hospital expenses, health care costs, hospice care, and other citizen benefits.

However, the payroll taxes are classified into three types- social security, Medicare, and federal unemployment taxes. So, let’s jump into the core part of this article.

What Is Payroll?

Before calculating payroll tax or payroll taxes, you should know what is payroll. Payroll is the compensation that every business must pay to its employees for a certain period. In general, it is handled by the human resource team or account department of the company.

In the small business case, the payroll is naturally handled by the organization head or associate.

However, payroll also refers to the list of the company’s employees and the compensation amount. Payroll can change from sick pay, overtime, and other variables.

Understanding Payroll?

Now, you may understand that payroll is a process that has the responsibility to track working hours, leave days, incentives, bonuses, overtime, an extra day, and late login. These are some factors that your payroll processor considered before sending money employee’s bank account.

In his case, many companies use software solutions for issueless functions. An employee can check their payroll and other information like gross salary, basic amount, EPF cost, and more.

How to Calculate Payroll Taxes?

If you running a small business and you want to learn to calculate Payroll taxes, then go through this section.

Here are a few general guidelines according to QuickBooks. So, the first step is to calculate employees’ gross pay

Calculate  Employees’ Gross Pay

The organization can determine employees’ salaries according to the pay rate. Most of the company pay employees monthly or weekly. Every two weeks or one month later. According to the Gross pay rule, “To calculate an hourly employee’s gross pay, multiply their hours worked in the pay period by their hourly pay rate.”

The formula: Hourly rate x total hours worked in the pay period = gross pay

On the other hand, if you want to calculate a salaried employee’s gross pay, divide their annual salary by the number of pay periods in the year.

The formula: Yearly salary / number of pay periods in year = gross pay

 

Take Out Pre-Tax Deductions

After calculating the gross pay you need to deduct the tax amount. Pre-tax deductions include:

• 401(k) and some retirement plans.
• Health insurance plans.
• Health Savings Account (HSA) or Flexible Spending Account (FSA) contributions.
• Some life insurance plans.

Deduct All taxes

Once you have done pre-tax deductions, then the remaining payment is taxed. The FICA rate is 7.65%. The medicare rate is 1.45% and social security taxes are 6.2%. And other tax rates will be settled by state, federal or local laws.

Calculate federal income tax with the IRS tax table. When you pay medicare taxes and social security taxes, you should pay federal taxes.

Voluntary Deductions Must Be Cut Off From The Remaining Salary

These may include:

• Roth 401(k) contributions.
• Long-term disability insurance plans.
• Wage garnishments.
• Life insurance plans.
• Union dues.

After paying deductions and all taxes, the employee takes the remaining amount home on payday.

What Are Payroll Taxes?

The payroll process, includes social security, Medicare, and federal unemployment taxes. For social security, the company can take 6.2% of your income should be up to $132,900. While, Medicare taxes out  1.45% of your income.

According to the expert, “employers also pay payroll taxes. They pay 6.2% of their income so, the government gets 12.4% of your total income. And, the employer pays 1.45 % of your income.”

What Is The Difference Between Payroll And Salary?

The difference lies in perspective. According to Investopedia,

“For an employee, the money received from a company as compensation often comes in the form of wages or salary (as well as bonuses, stock options, commissions, etc.). For a firm, these payments are an expense that is recorded as payroll.”

The Bottom Line

At the end of this article, these are all bout the payroll and payroll; taxes. Now you know how to calculate payroll taxes.

However, you can take help from a professional or o install software to do this. Many small businesses hire someone who knows everything about salary payment, payroll taxes, and remaining wages.

Hopefully, this article has been able to meet your queries. If you wish to get more info you can visit our website to get the relevant information regarding the same matter.

Author Bio-

Adam Strick is a passionate blogger. He loves to share his thoughts, ideas, and experiences with the world through blogging. Adam Strick is associated with Dream Land Estate, Follow The Fashion, Tech Trends Pro, and Voice of Action.