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Payroll Taxes Basics: Calculation, Pay, and Report

Payroll taxes are the taxes that the employers withhold from the employee’s salary to pay income tax and FICA with that. So, HR collects these taxes, pay it to IRS, report the taxes paid, and file the payroll tax reports.

The procedure of payroll taxes begins right from the time the employer begins to pay employees. If you are paying employees, you should withhold payroll and employment taxes. Moreover, you are also required to deduct the taxes and set aside the money that you have to pay on your own as an employer.

The employers are ought to make these payments in the defined period.

Get ready for taxes as soon as the first employee joins-

Your organisation should be prepared well off in advance before the hire joins. As you will require an Employee ID number. This will register you with the IRS. Then you need to register with the state for income taxes, and also get yourself registered as the employer of the state. It is better to deploy payroll software to avoid mistakes and the penalties they welcome.

Know your responsibility as an employer-

As an employer, even if you have one employee working, you must-

  1. Collect payroll tax documents.
  2. Calculate the taxes and withhold employee’s money that you should.
  3. Filing tax reports timely and paying taxes to IRS.

Some HR software are so intuitive that they alarm the HR if they are skipping any payroll tax submission update.

Perform payroll tax deductions-

The first responsibility for you as an employer is to calculate the amount you have to withhold for payroll taxes, FICA, federal and state income tax. The payroll software can reduce your tax deductions significantly.

Pay the taxes to IRS duly-

The world is going digital and because of this everything is done online. You should be vigilant and pay the taxes duly. Ideally, you pay payroll taxes monthly, if you have a small tax liability. However, if you have large tax liability i.e., you are a bigger organisation, you pay semi-weekly. Furthermore, different states have different taxes and dates for state-level tax submissions. So, configure your payroll software for the state you are in or keep a tab yourself on the payroll dates.

File tax reports with IRS-

Employers are also required to file a report or tax return every year which is also known as ITR. If the date is not followed, a minimum of 5K is charged as penalty. When you get the ITR, you can see in it-

  1. The amount withheld from employee’s salary for income tax.
  2. The amount collected for FICA
  3. The total amount of FICA (including employer’s part)
  4. You should include the amount you have deposited. If you have paid less than the amount you owed, you should clear the remaining amount too.

In a nutshell, this is what payroll taxes primarily include. However, these are the responsibilities and compliance can become a matter of concern for you, if you will not use payroll software.

Written By

Saajan Sharma is a digital marketer and guest blogger with several years of experience in the industry. He likes to help businesses stay informed and up to date with established and emerging technologies like SAP Business One, IoT, AI, Cloud, and others.

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