How to Take Taxes Out of an Employee's Salary
The government mandates that all employees pay taxes. The employer is responsible for deducting these taxes from the employees' gross wages. A delay in paying these taxes can result in hefty fines from the government to the employer. To ensure employees' taxes are properly deducted and paid, the employer may opt to hire a payroll staff or payroll service to handle the payroll. The payroll personnel must understand how to withhold these taxes so the employee and the government are paid correctly.
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Instructions
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Deducting Payroll Taxes
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Give all employees a federal tax form (W4) to complete upon their hire date. The employee must state how many dependents he is claiming, his filing status, then sign the form. An employee's federal taxes are based on the IRS withholding tables (Circular E), his filing status and number of dependents. If you are using payroll software, the system will correctly compute all taxes as long as they are entered accurately.
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Have the employee complete a state income tax form. The amount of state tax the employee is responsible for paying each pay date depends on the number of allowances he claims and his filing status. Note that some states, such as Florida and South Dakota, do not impose a state income tax. State tax amounts are determined by the state; therefore, check with your state's department of labor to ensure you are following their guidelines. Find out if any local, school or district income taxes apply in your state.
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Deduct Social Security taxes at a rate of 6.2 percent. The law requires that the employer deduct this percentage from the employee's wages. The employer is also required to pay a matching amount until the employee reaches the yearly maximum. For 2009, the wage limit is $106,800.
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Deduct Medicare taxes at a rate of 1.45 percent. Both Social Security and Medicare taxes are referred to as FICA taxes. There is no wage limit on Medicare taxes. It must be deducted from an employee's wages as long as he is earning. The employer is also required to pay a matching amount.
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Run reports at the end of every payroll to double-check the taxes deducted from an employee's salary. This is particularly important because if the wrong taxes are deducted, at year-end, the employee's W2 form will be incorrect.
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