As a business owner or financial manager, you are required by the Internal Revenue Service to withhold federal payroll taxes, including Social Security and Medicare taxes. Controlling payroll taxes includes withholding, filing, and remitting those taxes, and it is critically important that this is done correctly every time. Failing to handle withholding taxes properly could cause you to face steep penalties and/or fines for your business.
There are some best practices you can follow on how to calculate payroll taxes. Below are some of them:
- Payroll Deductions
There are numerous mandatory payroll deductions that your business needs to make. The Federal Contributions Act (FICA) is clear about what taxes must be withheld. It does not matter if the employee is part or full time, taxes still must be withheld. There is a minimum amount of taxes that need to be withheld from each employee, however, the amount varies for each employee.
- Calculators to Determine Withholdings
You know that you need to withhold taxes from your employee, but do you know how much you are legally required to withhold? Fortunately, there are many resources available to help you. You can manually figure out how much money to withhold and the IRS provides information about the withholding rates on their website. However, if do not feel confident in manual calculations, there are many paycheck tax calculator options available to you. Paycheck manager offers a free paycheck calculator, or eSmart paycheck offers a free online payroll calculator.
- Automation
One way to ensure payroll taxes are calculated properly is to automate the payroll processes for your business. If you are still manually calculating payroll deductions, you should stop right now. You are spending more time calculating your payroll that could be spent on other aspects of your business. You are leaving yourself susceptible to errors. By automating your payroll processing, you can cut costs by over 70 percent, decrease your possibility of error and allows you to focus on other business matters.
- Accounting and Payroll Software
Using an accounting and payroll software is a cost-effective and user-friendly way for your business to track the payroll and tax deductions of your employees. They include a payroll tax calculator to ensure that you are calculating payroll tax deductions properly. There are dozens of software products from which you can choose, you must be sure to find the one specific to the needs of your organization. Once you do, there is no limit to how the software can help you calculate taxes.
- Payroll Service Providers
You can consider hiring someone to handle and streamline all processes that are associated with payroll and tax withholding. A payroll service provider will handle calculating hours, deductions, and ensures all employees are paid timely. They make sure that all payroll is handled accurately and takes the stress off your shoulders. Many businesses find themselves in hot water because of errors made with payroll. A payroll service provider verifies appropriate tax forms are printed, the pay is directly deposited into employee’s bank accounts all while reducing errors and saving money.
There are some easy and affordable ways to protect you and your company when it comes to payroll tax deductions. Handling your payroll tax deductions in the way you always have could leave you open to errors and potential penalties and fines. Following the best practices listed here helps to protect your bottom line and you can start that process today.
