How to Determine Tax Withholdings for Your Employees

Payroll taxes are complicated. There are so many ins and outs involved in calculating, reporting and withholding taxes it can be difficult to keep all the rules straight. Various factors are involved in understanding which taxes apply to your employees, but the common taxes most employers see, according to the BizFilings article, "Determining Which Payroll Taxes Apply to Your Employees," are as follows:

  • Federal income tax withholding
  • Social Security and Medicare (FICA) taxes
  • Federal (FUTA) and state unemployment taxes
  • State, and sometimes local, income taxes
  • State disability insurance taxes

Federal Income Taxes

The article mentioned above explains payroll taxes very simply, which we will help to summarize in this post. When an employee receives a payroll statement, it usually lists all of the tax withholdings similar to what you see in the list above. Employers are required to do this for the IRS. Fortunately, the IRS has set up tax tables that make it simple to determine how much to withhold from each employee’s paycheck. Employees complete a W-4 at the start of their employment, which helps employers decide how many withholding exemptions are allotted for that employee. Marital status and dependents determine withholding exemptions.

How to handle tax withholdings

Each tax deduction amount differs from employee to employee, they will not be the same across the board for reasons such as;

  • how often your employees are paid
  • marital status
  • how many withholding exemptions are claimed
  • wage amount

To help employers determine how much to withhold for your employee each paycheck, there are at least two IRS tax tables to help calculate those amounts. Payroll companies, such as BenefitMall, and payroll software used by some companies automatically use these tables to help calculate tax withholdings.  To better understand how each work, please see the following information:

Wage-bracket table – First determine how often your employee is paid, then their marital status and then their wage bracket. That information will lead you across the chart to locate the withholding amount.

Percentage method table – This table also uses payroll period and marital status to decide withholding amounts. The only difference is that you do have a few more options to choose from for your payroll period, and the employer must use the employee’s withholding tax exemptions to help configure the tax percentage amount.

There is so much more that goes into taxes for your employees. We highly advise you to read more on this topic at "Determining Which Payroll Taxes Apply to Your Employees," where you can review topics like;

  • Federal Form W-4
  • Permissible exemptions
  • No-tax liability exemptions

We also suggest you review this topic through the IRS website by clicking here.  As previously mentioned, each employee has a different circumstance, which makes taxes more challenging. BenefitMall would be happy to discuss how we can help you with your payroll so that you can rest easy knowing all of the complicated tax calculations are handled appropriately.