Payroll Taxes
Payroll taxes are the state and federal taxes that an individual, as an employer, is required to pay on behalf of the employees . One is required to withhold state and federal income taxes as well as social security and Medicare taxes from the employee ?s wages. One is also required to pay a matching amount of social security and Medicare taxes for the employees and to pay State and Federal unemployment tax . Payroll tax generally refers to two kinds of taxes :
Calculating Payroll Taxes
The Internal Revenue Service (IRS) acts very strict on payroll tax and the deductions associated with it . Even a small miscalculation can land an organization in serious trouble with this regulatory authority . Thus, making it of utmost importance for an organization, to maintain careful records of payroll accounts . The first step to calculating payroll tax is getting each employee to fill up the W-4 form from the IRS . This form aims to calculate the payroll tax depending on the marital status of an employee and the number of dependants . Since most states have payroll structures that are based on the federal system formulated by the IRS, this form helps organizations calculate the payroll tax withholding for both federal and state governments . Currently, the social security tax withheld from an employee\\'s wages is calculated as 6 .2% of total salary. The same amount has to be contributed by the employer, and added to the payroll account of the organization . The wage base for this tax is $76,000 a year, beyond that, taxes need not be deducted from the employee.
The same procedure is followed for Medicare taxes, calculated at 1.45% of the employees\\' salary. There is no wage base for Medicare taxes and the employee and the employer goes on paying the tax independent of the salary of the employee . The Federal Unemployment Taxes (FUTA) is also calculated at 6.2%, but an employer can take credit up to 5.4%. The FUTA wage base is $7,000, an employee whose wages exceed this amount in a year, stops paying FUTA taxes that year . The same rules are applicable to State Unemployment Taxes (SUTA) also. These calculations and deductions have to be done accurately to avoid any confusion. Each company must have a payroll account so that these deductions are transferred to and paid to the state and central governments at the end of the year . Most of the organizations to any miscalculations use IRS approved Payroll Software .
FICA
Social security tax, also known as FICA tax must also be withheld from the employee ?s wage. The wage base for social security tax in 2006 was $94,200 and for 2007 is $97,500 . Once that amount is earned, neither the employee nor the employer owes any social security tax .
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