How to Figure Payroll Taxes in Michigan
The Internal Revenue Service is the federal organization that administrates federal payroll taxes. Each state has its own revenue agency that regulates state payroll taxes. Michigan's Department of Treasury is responsible for enforcing the state's payroll tax laws. Michigan employers are required to withhold federal and state payroll taxes from employees' paychecks, plus pay their own portion of taxes. The calculation method varies by tax.
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Instructions
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Figure state income tax withholding. Consult the employee's state withholding exemption certificate (MI-W4) to determine the amount of exemptions the employee has claimed. Michigan allows employees a certain sum for each exemption claimed. The Michigan Income Tax Withholding Guide has the tax rate and amount allowed per exemption and pay period. For example, the allowance for one exemption in 2010 for a weekly pay period is $69.23. Unlike most states that use withholding tax tables to figure state income tax, Michigan charges a flat rate of 4.35 percent of taxable wages. To arrive at taxable income, deduct the employee's total allowances from her gross pay.
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Calculate federal income tax withholding. The IRS bases federal income tax withholding on the employee's filing status, allowances and the federal withholding tax tables. See Lines 3 and 5 of the employee's W-4 form for his filing status and allowances. Consult IRS Circular E for the withholding tax tables (see Resources). Use the tax table relevant to the employee's income, filing status, allowances and pay period.
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Compute FICA taxes. Social Security and Medicare taxes are called FICA taxes. Both the employer and the employee pay matching portions of FICA taxes. Calculate Social Security tax at 6.2 percent of gross earnings, up to the yearly wage limit of $106,800, and Medicare tax at 1.45 percent.
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Figure state unemployment insurance; the employer alone pays this tax. The state sends employers their unemployment tax rate for the year. Michigan's wage base for 2010 is $9,000. Therefore, to arrive at the unemployment insurance amount, the employer multiplies its unique unemployment tax rate by the first $9,000 paid to each worker.
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Figure federal unemployment tax; the employer alone pays this tax. Federal unemployment tax is calculated at 6.2 percent of the first $7,000 paid to each worker. If you pay your state unemployment tax on time, you can take the maximum credit of 5.4 percent against your FUTA tax. This reduces your federal unemployment tax rate to .8 percent.
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Tips & Warnings
Pay federal income tax withholding and FICA and FUTA tax liabilities to the IRS. Pay state unemployment insurance and state income tax withholding to the Michigan Department of Treasury.
References
Resources
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