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Posted On: 02/27/2024 / Payroll Services
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Home » Resources » Blog » What Are Payroll Taxes?

Payroll is one of the backbones of any organization, whether it is a multinational corporation or a small business. In order to keep your payroll system healthy and your employees happy, dealing with payroll taxes accurately and in a timely fashion is necessary. But what are payroll taxes and how do you make sure everything is accounted for?

In this guide to staying compliant for payroll, we’ll cover:

  • How do you calculate payroll taxes?
  • What is the purpose of the W-2 Form?
  • What is Form 941 and when must It be filed?
  • What is the best way to pay payroll taxes?

Use this information to ensure your payroll taxes are being filed correctly and your business is on the right track to financial success.

How do you Calculate Payroll Taxes?

In order to properly calculate payroll tax, you must know the current rates for social security and Medicare. These two rates are assigned to an employer portion of payroll tax and an employee portion of payroll tax. Combined, these comprise the FICA tax rate.

For example, the current tax rate for social security is 6.2%, and this is contributed once by both the employer and employee to equal 12.4%. Medicare is currently 1.45% for both the employer and employee, totaling 2.9%.

Thus, the current payroll tax rate is 12.4% + 2.9%, or 15.3% total.

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What is the Purpose of the W-2 Form?

A W-2 form is meant to show important information about the income an employee earns from an employer.

This information includes:

  • Amount of income earned
  • Taxes withheld from a paycheck
  • Benefits provided on this paycheck
  • Year-to-date financial information

The W-2 is used to file state and federal taxes, and is required by law to be distributed by employers to all their employees.

What is Form 941 and When Must it Be Filed?

Form 941 is an employer’s quarterly federal tax return. This is used to report withholding amounts for the last three months of estimated income tax payments, employer payments, FICA taxes, and any other withholdings from employee wages.

As form 941 is a quarterly form, it must be filed as soon as your fiscal quarter is over and your last payroll has been run for that time period. Even if you do not pay wages for a certain quarter, your company is expected to file a 941. The penalty for not filing a 941 on time is an additional 5% of the amount owed for each month up to 5 months.

Luckily, most payroll software and third-party payroll services will send you automated reminders or take care of form 941 calculation and filing on your behalf.

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What is the Best Way to Pay Payroll Taxes?

Payroll taxes can be very difficult to navigate if you are calculating them manually or running manual payroll. Additionally, if you are running in-house payroll services, you will be obligated to file and pay payroll tax each pay period, quarterly, and yearly. The penalties for being late or delinquent on these taxes and forms are significant, and negotiating on your own behalf can be time-consuming and frustrating.

For all these reasons, we recommend using an outsourced payroll processing service that can pay your payroll taxes each pay period. These services can also take care of:

  • Quarterly filings
  • Tax planning and preparation
  • Disputes with payroll tax
  • Changes in payroll tax laws

There is no one-size-fits-all solution for your small business, but when it comes to something as sensitive as paying payroll and the associated taxes, we recommend working with trusted professionals.

Paytech is Arizona’s Leading Outsourced Payroll Service

At Paytech, we’ve been providing small businesses in Arizona with award-winning payroll services for decades. We understand how time-consuming and frustrating it can be to run in-house payroll and look after all the details each pay cycle. This is why our team of experts is here to do it for you – so you save time and money while reducing stress.

If you are looking to take your payroll and business to the next level, please reach out to us today. We’d love to work together to create better opportunities in the future.