Once you know what payroll taxes are, you can begin to calculate just how much you owe for each employee. Different states have different laws for state income tax and state unemployment tax. However, there are Federal taxes that will be the same no matter what state you are in such as Federal Income Tax, Federal Unemployment Tax, Social Security Tax and Medicare Tax.
We will break each of these down with what the federal rates are as well as where to find the state rates. It is recommended that you use a software program or a CPA to help you get exact number as this will just be a guideline for you to get an idea of what you might owe.
How To Calculate Payroll Tax:
Calculating Social Security Tax: What you as an employer pay and what your employees pay.
So what is due? An employer has to withhold 6.2% of the employees pay each paycheck so the employee pays the social security tax. You as the employer also have to pay that 6.2% each time you cut a paycheck but your 6.2% doesn’t come out of their paycheck. You are solely responsible to pay that out of your company’s pocket.
Both the employer and the employee pay Medicare tax. You have to withhold 1.45% from the employee and pay 1.45% as the employer. Once the employee earns over $200,000 or $250,000 if married filing jointly, there is a Medicare surtax of .9%. Only the employee pays this. The employer is not charged that surtax.
State and Federal Income Taxes
State Income taxes are calculated by state and income level of the employee. Employers do not pay this tax but are required to withhold this tax from the employee’s wages and send the money withheld to the state.
Federal income taxes are required to be withheld by the employer but again paid by the employee. These rates are based off of income level and what the employee filled out on their W2 for deductions. It will be an estimation based on their income. When they file their taxes the following year, they will either get money back if too much was withheld or pay more if not enough was withheld.
Go to www.irs.gov to get the latest rates.
State Unemployment Taxes
State unemployment taxes are determined by state. These rates change based on your unemployment rating. The more claims against you, the higher the rate. To get your California business’ current rate go to
Federal Unemployment Taxes
Employers with for-profit businesses have to pay a FUTA tax of .6%. The tax applies to only the first $7,000 of each employee’s wages. However, employers receive a credit for the state unemployment tax amounts paid into state funds. You can learn more about that here: