- Advertisement -
Home Money How to Calculate Employer Tax Liabilities?

How to Calculate Employer Tax Liabilities?

- Advertisement -

When you have reached the time to release payments to your employees, you have come to the right place. Our employment tax liabilities guideline teaches you to calculate the payroll tax liabilities in the most efficient manner. After going through our guidelines, you will be enabled to handle and manage withholdings and deductions in all states. Employers will find it easy to calculate the net pay, determine how much to hold back, and how much to write in the employee’s paychecks.

The steps our calculator uses to figure out each employee’s paycheck are pretty simple, but there are a lot of them. Here’s how it works, and what tax rates you’ll need to apply.

Related Post: Best Free Payroll Software for Small Business in 2020

Federal Tax Rates: Calculation of Payroll for an Employee

Federal Tax Rates

1. Finding out Gross Wages of Employees: Gross wages are the total amount of money that the employee earns in the current pay period. This not the case for the hourly, salaries, and contractors. Let us find out the for the salaries of hourly, salaried and contractors:

  • Hourly Employees: You must multiply the hourly pay rate with the number of hours the employee has worked. If the employee had worked overtime hours, you must make sure to calculate the overtime hours also.
  • Salaried Employees: A salaried person is given a fraction from the annual salary paycheck. So, you must divide that annual salary by the number of times it is released each year.
  • Contractors: As an employer, you cannot deduct the tax amount from the contractor’s salaries. You must pay them their invoices. You must remember to send every contractor 1099 form at the end of the year. You should keep the payroll records that will make this process easier.

Also Read: How to Win a Business Deal?

2. Subtract Pre-Tax Withholdings. You do not only deduct the payroll taxes, but also the health and retirement benefits. The process of the documentation and the remittance of the funds will vary from one organization to another – based on the benefits providers. In the payroll software, you can integrate many services that automate the deductions.

3. FICA Taxes: FICA (Federal Insurance Contributions Act) refers o the social and medical security taxes that employers and employees have to pay. These are detailed below:

  • Social Security Tax: If the gross pay of the employee is $137, 700 in a year, you may withhold the 6.2% of every employee’s taxable wage. In 2020, the employee will pay the $8,537.40. The employer must also match the employee’s contributions.
  • Medicare Tax: For the medicare policies, employers may withhold 1.45% of every employee’s taxable wage under FICA. Employers are instructed to match this tax as well. Though there is no withholding limit, well-off employees, earning more than the $200,000, are required to pay the additional medical tax of 0.9%. You may not match the 0.9%, but these withholdings must be included in your calculations.

4. Liable for the Payment of Federal Unemployment Taxes: The taxable income is $7,000 that an employee earns annually. The tax rate is 6%. If your company pays into a state unemployment fund, your Company becomes eligible for a tax credit.

5. Deduction of the Federal Income Tax: The tax ranges from 0% to 37%. You can find further withholding information from the official website of the Federal Income Tax Institution.

Also Read: Increasing Your Visibility at Work

6. Minus the Post-tax Deductions: There are some employees who must fulfill the obligations ordered by the court, such as child support. Such employees can choose post-tax contributions for the savings accounts, elective benefits, and other withholdings.

In addition to the federal taxes, employees must count and apply the local and state taxes. The Maths for the process is the same.

- Advertisement -
- Advertisement -

Stay Connected


Must Read

How Do Startup Incubators Make Money?

A major objective of an incubator is to assist a startup growth. Incubators solve issues of the startups and provide workspace, training, or other...
- Advertisement -

How An Accountancy Firm Can Benefit Your Business Finances

At the early stages of a business, running it as a one-man-show may not be difficult. You might play all the roles involved, such...

Bitcoin – Top 4 Great Advantages that Users Get!

The world is developing rapidly with lots of emerging technologies. These particular technologies made the lives of people very easy than before. People can...

Bitcoin wallet- Store your bitcoins in digital wallets!

Bitcoin is a digital currency, and when we discuss technically, these coins are made up of 1s and 0s. These coins are stored in...

Recent Published Startup Stories

The Fastest Growing Eyewear Start-up

When looking for online spectacles, you can come across a plethora of brands that retail glasses and sunglasses. However, you can not find one...

InfoClutch: Providing Success-Driving B2B Marketing Data Solutions Across the Globe

InfoClutch is a B2B data marketing company based in Edison, New Jersey, that fulfills its clients’ tailored data and information research, analytic, and communication...

Price2Spy’s Path To Success In A Dynamic E-commerce Environment

Decades ago, sellers used to manually strive the idea of their competitors each striking point so that they could come up with something more...

Outfunnel: The Revenue Marketing Automation Tool For Smbs

Marketing automation drives a 14.5% increase in sales productivity and a 12.2% reduction in marketing overhead; Mind-Boggling, isn’t it? Well, what if we tell...

The List of Best Top 10 Startup Incubators and Accelerators Worldwide

The number of startups in the world are increasing. They are successful with the backing of the best incubators in the world. The incubators...
- Advertisement -


Please enter your comment!
Please enter your name here

Select Language »