Payroll Calculator

Payroll taxes are calculated through a series of steps and considerations, involving both employers and employees. Here's a breakdown:

For Employees:

Gross Wages: Start with the employee's gross wages, which include their salary or hourly pay before any deductions.

Pre-tax Deductions: Subtract any pre-tax deductions, such as contributions to retirement accounts (e.g., 401(k)) or healthcare plans (e.g., health insurance premiums).

Federal Income Tax: Calculate federal income tax withholding based on IRS tables and guidelines, taking into account the employee's filing status and allowances claimed on Form W-4.

Social Security Tax: Deduct 6.2% of the employee's wages up to a specified income cap for the Social Security tax.

Medicare Tax: Subtract 1.45% of the employee's total wages for the Medicare tax, with no income limit.

Additional Deductions: Consider other deductions like state and local income taxes, if applicable, as well as any voluntary deductions the employee has authorized (e.g., charitable contributions).

Net Pay: The result is the employee's net pay, which is the amount they receive after all deductions and withholdings.

For Employers:

Employer Match: Employers are required to match the employee's 6.2% contribution to the Social Security tax and 1.45% for the Medicare tax, effectively doubling these amounts.

State and Local Taxes: Calculate and withhold state and local income taxes if required by the jurisdiction where the business operates.

Other Employer Costs: Consider additional employer costs, such as unemployment insurance tax, workers' compensation insurance, and any other required contributions or benefits.

Total Tax Liability: Sum up all employer costs, including payroll taxes and other expenses related to employing the worker.