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Payroll Tax Calculator

Need a little help with those payroll taxes? You’re in the right place. Our payroll tax calculator makes it simple to understand what your tax obligations will look like for each new employee. If you want to dig deeper, read on to learn more about calculating payroll taxes. And remember: we’re always here to help if you want someone to do it for you.

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The ins and outs of payroll taxes

It can be a little daunting when it’s time to get out that calculator and run payroll. Chances are, it’s the last thing you want to think about, but getting it right is something that really matters to both your employees and your friendly neighborhood tax. To make it easier to understand, we’ve broken down the process into a few easy (er, easier) steps.

Payroll taxes fall into one of three categories:
  • Taxes you pay as an employer, which include federal and state-level unemployment taxes
  • Taxes you deduct on behalf of your employees (aka withholding taxes), particularly to pay federal and state income tax
  • Taxes you’re both responsible for, including contributions to Medicare and Social Security
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What you’ll actually need to pay depends on a number of different factors — including your business type, size, and location — so be sure to check with a tax professional who can tell you what’s relevant for your particular business.

What you have to pay: Unemployment taxes

Unless your organization is exempt (e.g. a charitable organization), you need to pay into federal and state unemployment insurance — over and above what you pay each employee.

Unemployment insurance provides financial assistance to workers who:
  • Are unemployed for reasons they don’t have control over (i.e. they didn’t quit).
  • Meet their state’s minimum requirements for time worked or wages earned.

Federally, contributions are governed by the Federal Unemployment Tax Act (FUTA) . Each state runs its own unemployment insurance ( SUI ) program, and your location can impact both your SUI rate and potential tax credits. Here’s why:

FUTA’s maximum taxable earnings, what’s called a “wage base,” is $7,000 — anything an employee earns beyond that amount isn’t taxed. The standard FUTA tax rate is 6%, so your max contribution per employee could be $420. However, you can also claim a tax credit of up to 5.4% (a max of $378). Employers can typically claim the full credit, as long as their unemployment taxes are paid in full and on time.

If you get the full credit, your net FUTA tax rate would be just 0.6% ($42), plus whatever you owe to your state government.

But there’s another way your location can impact your tax rate. If your state doesn’t have the money to pay out UI benefits, it may need to get an Unemployment Trust Fund loan, becoming what’s called a credit reduction state. If your state doesn’t pay off that loan in time, you could see your FUTA tax credit slowly carved back — by 0.3% every year the loan is outstanding.

What your employee is on the hook for: Income taxes

Withholding taxes are pay-as-you-go individual income tax installments, that you collect and remit throughout the year. Income taxes are levied federally and by most states, but they can also be levied at the city or county level.

As an employer, it’s up to you to withhold the amount calculated by your employee from their overall pay, then deposit it as appropriate. As long as you do this accurately and on time, you should be problem free.

Your employees are responsible for helping you understand much income tax you should deduct by filling out Form W-4 (a form they should complete as a new hire and update as needed). Then you can use the IRS withholding calculator to understand what tax rate to apply for each employee.

Income tax rates vary by state, like a flat tax of 3.07% in Pennsylvania or a tax that varies by income level, reaching rates as high as 13.3% in California. Nine states don’t collect individual income tax at all — although there may be alternate taxes your employees will need to account for.

By the time your employees file their taxes in April, 90% of what they owe from their salary or wages should have already been deducted and paid by you. If you’ve deducted too much, they may be able to claim an income tax refund; if too little has been collected, they might be subject to penalties or fines.

You’re both responsible for: Social Security and Medicare contributions

Social Security and Medicare are federal programs that are primarily funded by taxes paid by both employers and employees, as set out by FICA , the Federal Insurance Contributions Act. These are taxes that you withhold from employees, but you’re also on the hook for a contribution that matches what they put in.

The wage base for Medicare has no limit, so both you and your employee are liable for 1.45% taxes on everything earned — including the value of any non-cash benefits. An employee will also be taxed an additional 0.9% on anything they earn over $200,000, but you don’t need to match that amount.

Social Security (aka Old-Age, Survivors, and Disability Insurance, or OASDI) has a wage base of $127,200 (as of 2017), an amount that increases regularly to keep pace with inflation. Both you and your employee will be taxed 6.2% — up to $7,886.40 each with the current wage base.

Your employee’s FICA contributions should be deducted from their wages. Your contributions, however, should be paid in addition to other compensation.

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The information provided by the Payroll Tax Calculator is for general information and estimation. All of the taxes or fees that apply to your business may not be accounted for, or fully up to date. ZenPayroll, Inc., dba Gusto ("Gusto") does not promise or guarantee that the information in the Payroll Tax Calculator is accurate or complete, and Gusto expressly disclaims all liability, loss or risk incurred by employers or employees as a direct result or an indirect consequence of its use. By using the Payroll Tax Calculator, you waive any rights or claims you may have against Gusto in connection with its use.