How to Figure Federal Taxes for a Payroll
The Internal Revenue Service is the federal institution that administrates and enforces federal payroll tax laws. Employers are required to withhold federal income tax from employees' wages. Social Security and Medicare taxes are types of federal payroll taxes that employers must withhold from income---the employer is subject to these two taxes as well, plus federal unemployment tax, or FUTA. Federal payroll tax calculations vary by tax.
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Instructions
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Calculate federal income tax. See Lines 3 and 5 of the employee's W-4 form for her filing status and allowances. Use the W-4 and the federal withholding tax tables (IRS Circular E) to figure federal income tax withholding.
The IRS allows a certain sum for each allowance the employee claims on his W-4. The more allowances he claims, the less his federal income tax withholding. For 2010, the amount per allowance for a weekly payroll is $70.19. Consequently, the amount for a biweekly payroll is $140.38 per allowance.
Suppose two employees earn $500 weekly. One claims single with one allowance, and the other, single with two allowances. According to the 2010 Circular E, the former would pay $44 weekly; the latter would pay $33.
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Figure Medicare tax at 1.45 percent of all gross income. The employer pays a matching amount of this tax.
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Compute Social Security tax at 6.2 percent of gross income, up to the annual wage maximum of $106,800. The employer also pays a matching amount of this tax.
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Calculate federal unemployment tax at 6.2 percent of the initial $7,000 paid to each employee. You can take a credit of 5.4 percent against your FUTA tax if you paid your state unemployment tax on time. This reduces your federal unemployment tax rate to 0.8 percent.
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Tips & Warnings
The Circular E and the Social Security Administration's website have the Social Security and Medicare tax rates. The Circular E has the annual FUTA tax rate.
Report and pay all federal tax withholding and Social Security and Medicare tax liabilities to the IRS. Reporting is generally done quarterly or annually; payments are made semi-weekly or monthly. Report federal unemployment tax annually to the IRS. FUTA tax deposits are generally due by the last day of the first month following the quarter's end. The Circular E has your tax payment and filing schedule.
References
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