Understanding Payroll Taxes: Tax Planning Tips for Employers

Payroll taxes are a critical part of running a business, but navigating them is easier said than done. No matter your industry, there are a lot of complexities involved in business payroll taxes. A better understanding of your responsibilities will not only help you optimize your cash flow but also help you avoid penalties.

Here at Unity Business Advisors, we go beyond tax preparation services, offering comprehensive strategies that support the long-term growth of your business. Here’s everything you need to know about payroll taxes and how our firm can help you plan effectively.

Key Payroll Taxes

Payroll for small businesses is complex, with taxes divided into two categories: employer-paid and employee-withheld.

Employer-paid taxes include Medicare, federal and state unemployment taxes, Social Security, and, in some states, disability insurance.

Employee-withheld taxes include federal and state income taxes that must be withheld from any wages and reported to the IRS and state tax agencies. Knowing the difference between the two is the first step in understanding your company’s payroll taxes.

How Much Are Payroll Taxes?

Payroll taxes include both employer-paid and employee-paid portions. Wondering how much is payroll tax? Exact amounts vary by state, industry, and employee wages. However, here’s a general idea of what to expect:

• Social Security tax: Both employee- and employer-paid tax is around 6.2% on wages up to a certain limit, which is set annually.
• Medicare: Again, both have around the same rate, 1.45%. Employees earning above a set threshold pay an additional 0.9%, which employers do not match.
• Federal Unemployment Tax Act (FUTA): As an employer, you’ll pay 6% on the first $7,000 of each employee’s wages, with possible reductions for any state unemployment tax credits you may have.
• State Unemployment Tax Act (SUTA): This varies widely by state and industry-risk classification. That said, employers are typically the ones responsible for paying this tax.

How Do You Calculate Taxes From Payroll?

There are three main steps to follow when calculating your payroll taxes.

Step 1: Determine Your Liabilities

You’ll need to identify all local, state, and federal tax requirements you’ll need to follow based on your industry and location.

Step 2: Apply Rates

Keeping in mind the current year’s annual limits for Social Security and other taxes that have a cap, you’ll multiply all applicable tax rates by employee wages.

Step 3: Account for Additional Costs

You’ll need to consider other costs, such as workers’ compensation and unemployment taxes.

Sound complex? That’s because it is! Employer payroll taxes are best left to professionals. We offer comprehensive business tax services that leverage all available deductions while keeping your company compliant. You focus on growing your business—we’ll focus on the taxes.

Planning Tips

Here are a few best practices to help make the payroll tax process go as smoothly as possible.

Start a Tax Fund

Budget for your company’s payroll taxes by setting aside funds each pay cycle. By opening and contributing to a dedicated account, you’ll be better prepared to make tax payments when the time comes. This move can help protect your cash flow and business operations.

Make Use of Payment Plans

If needed, ask a tax professional about a payment plan for payroll taxes. If you anticipate cash flow constraints, this proactive move can offer much-needed flexibility while keeping your business compliant.

Stay on Top of Deadlines

Missed deadlines = costly penalties. A tax calendar or payroll software can help you keep track of important filing deadlines. Better yet, partner with Unity Business Advisors to have deadlines managed for you!

Go Beyond Compliance

Partner with our professionals for assistance that goes far beyond payroll taxes. As an accounting and business advisory firm, we’ll optimize your financial health to ensure you meet your growth goals. Let’s connect to discuss the industry-specific challenges you face and the comprehensive solutions we offer that help you achieve next-level success.