How to Determine Your Federal Payroll Taxes
When you own a business, one of the accounting tasks you have is to determine your federal payroll taxes. These fall into two categories. Some federal payroll taxes are paid by the employee and are deducted from her paycheck. Employee-paid federal taxes include federal income tax and the employee's contribution to Social Security and Medicare. Other federal payroll taxes are paid by you, the employer, based on the employee's earnings. Employers are responsible for their share of Social Security and Medicare, plus the FUTA (unemployment) tax.
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Instructions
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1
Total the employee's gross wages. Don't include reimbursements for business expenses. You do include overtime, commissions and bonuses. For tipped employees, add the tips the employee has declared or the minimum required by the IRS, whichever is greater (from Publication 15, Circular E).
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2
Find the employee's filing status, claimed withholding allowances and other information on her W-4 form. If a W-4 has not been filled out, assume the employee is single with no withholding allowances. Some employees may be eligible to claim "Exempt" status, in which case you do not withhold federal income tax (this doesn't affect other federal payroll taxes). An employee may also indicate on the W-4 that she wants a specific sum withheld in addition to the required federal income tax. Add this amount to the federal income tax to be withheld.
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3
Calculate the employee's taxable income. From Publication 15, Circular E, find the appropriate figure for a withholding allowance and multiply it by the number claimed. For example, in 2009 the figure for a single person paid weekly was $67.61. If the employee has 2 withholding allowances, multiply the amount by 2 ($135.22). Subtract this from the employee's gross pay to get the taxable income. For example, if the gross pay is $440, the taxable income in this example is $304.78.
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4
Determine federal income tax to be withheld. Use the applicable percentage table in Publication 15, Circular E. Using the example from Step 3, find the percentage table for single persons paid weekly. The table lists the percentage of tax to be withheld from progressively greater wages. In our example, the first $51 is not taxed. From $51-$198, the percentage is 10 percent ($14.70). Take 15 percent of the amount over $198 ($106.78), which is $15.72. Add the amounts together ($14.70 and $15.72) to find the federal income tax ($30.42).
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5
Calculate the employee's share of Social Security/Medicare taxes. The employee pays 6.2 percent of gross pay for Social Security tax until reaching year-to-date earnings of $106,800 (the cap for 2009). For Medicare, the figure is 1.45 percent of all gross wages (there is no cap for Medicare tax).
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6
Determine employer-paid federal payroll taxes. For Social Security and Medicare taxes, the employer pays the same amount as the employee, so use the amounts from the results of Step 5. The federal unemployment tax (FUTA) is 6.2 percent of the employee's gross earnings. However, this amount is reduced to as low as 0.8 percent depending on how much you pay in state unemployment tax (SUTA). You will need to determine your SUTA rate to find your FUTA rate.
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Tips & Warnings
As an employer, you are also responsible for determining state payroll taxes. These vary from state to state. You should contact your state Department of Revenue to get the necessary forms and instructions.
