Ever been stuck with calculating payroll taxes? We know you’ve been there and that’s why this article is going to rescue you from all that trouble and uncertainties you’ve been facing so concerning calculating payroll taxes. Know How to Calculate Payroll Taxes in QuickBooks.
As an important part of the tax filing procedure, scroll further to learn more about payroll taxes and how to calculate and set them up on QuickBooks.
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What are Payroll Taxes?
The salaries, commissions, tips, or wages, which a working professional makes, few taxes are levied on such earnings and thus are further known as Payroll taxes. The process of levying these taxes happens via the employers who levy the amount from their respective paychecks and then pay to the government.
These payroll taxes are collected by the Government to sponsor various social insurance programs like Medicare and Social Security.
Generally, payroll taxes are confused with federal payroll taxes that are associated with state income taxes and federal taxes. However, the main differentiating factor between these two taxes is that the payroll taxes are levied or collected for funding few focused social programs.
On the other hand, state income taxes and federal taxes are submitted for U.S. Treasury’s general funds. Also, every working professional has to pay a flat payroll tax rate as opposed to the income taxes which depend on employee’s earnings.
There are two types of payroll taxes that are levied from you directly:
FICA TAX (Federal Insurance Contributions Act)
Standing for Federal Insurance Contributions Act, it is known for covering social security and Medicare and is shared by both the employee and the employer. The portion which is covered by the employer is 1.45% for Medicare and 6.2% for social security. The same amount is to be remitted and collected from the employees.
FUTA TAX (Federal Unemployment Tax Act)
Standing for Federal Unemployment Tax Act, it is known for covering unemployment insurance. The overall amount allocated for this tax is 6%. Although, few states might have a credit of 5.4% which means the majority portion of the employers will pay only 0.6%.
Other than the ones mentioned above, the payroll taxes which are to be just collected and remitted are:
- SECA Tax (Self-Employed Contributions Act)
- SUCA Tax (State Unemployment Tax Act)
- Federal Income Taxes
- State and Local Taxes
Why do You Need to Calculate Payroll Taxes in QuickBooks?
When you enter payroll data and transactions in QuickBooks, the tax calculations and payroll wage are derived respectively. Thus, before the tax filing season kicks in, you need to ensure that the employees’ payroll data is up-to-date.
If you want that the application to properly calculate the tax amounts and correct wages, verification of employees and payroll items must be checked properly.
Advisably, try having a practice in place to run payroll reports at regular intervals.
How to Calculate Payroll Taxes?
Let’s first get started with calculating FICA Payroll Tax; Under FICA, the tax levying events are Social Security withholding and Medicare.
FICA Tax Calculation
For calculating Social Security withholding, you need to start with multiplying the gross pay of your employee for the current pay period with the latest ongoing rate of 6.2% for the Social Security tax rate.
The amount must be deducted from the employee’s paycheck and remitted with the payroll taxes.
Gross Pay = $1,500.00
Current Medicare Tax Rate = 6.2%
The Amount Payable for the Social Security Tax Deduction = $93.00
For calculating Medicare withholding, you need to start with multiplying the gross pay of your employee for the current pay period with the latest ongoing rate of 1.45% for Medicare tax rate.
Gross Pay = $5,000
Current Medicare Tax Rate = 1.45%
The Amount Payable for the Medicare Deduction = $72.50
FUTA Tax Calculation
As mentioned earlier, the FUTA tax rate is 6%, and the approx. tax rate, which the employers ultimately pay, is 0.6% because each state receiving credit for covering the remaining portion of 5.4% of FUTA payments.
For eg, if you owe 6% FUTA tax, then you would be eligible for getting a credit deduction of up to 5.4%, which ultimately means the final FUTA tax liability to be levied for you would be 0.6%.
Thus, the calculation would be like,
The Quarterly Wage of Employee = $7,000
FUTA Tax Rate = 0.006%
The Amount Payable for the FUTA Tax Deduction = $42
How to Calculate Payroll Taxes in QuickBooks?
Now that you know how to calculate payroll taxes, let’s get you guided with how to calculate payroll taxes in QuickBooks also.
To do so, buy payroll services, speaking of which, QuickBooks Payroll Services is the most optimal choice to choose for the same.
Follow the instructions that are explained in the next section:
Step 1: Visit https://quickbooks.intuit.com/payroll/
Step 2: Choose from the various plans and pricing and checkout to purchase. You can also try out the 30-days free trial version.
If you still feel stuck while calculating payroll taxes, nothing to worry about! Our experts are seasoned to provide you with immediate assistance on calculating payroll taxes and more.
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Frequently Asked Questions (Faqs)
As a Small Business Owner, What Taxes do I Need to Pay?
As a small business owner, the number of taxes that you need to pay is:
Federal and State Income Taxes
Capital Gains Taxes
Self-Employment Taxes, When Applicable
What are Payroll Tax Penalties Levied for Failing to Deposit Payroll Taxes?
The payroll tax penalties levied for failing to deposit payroll taxes are as follows:
2% penalty for 1–5 days late
5% penalty for 6–15 days late
10% penalty for 16+ days late
15% penalty for 10 days over post first IRS bill
Are there any other Payroll Tax Penalties Apart from Late Payment Penalties?
Yes. Apart from late payment penalties, payroll tax penalties to be levied are as follows:
Failure to file penalty, Which is calculated on the unpaid tax as 5% per month
Failure to pay penalty, Which is calculated on the unpaid tax as 0.5% per month