How do I calculate payroll taxes for my employees?
Payroll taxes involve two separate pieces. What you withhold from employee paychecks and what you pay as the employer on top of their wages.
For withholding, you deduct federal income tax based on each employee’s W-4 form. The amount depends on their filing status, dependents, and any additional withholding they request. This isn’t a flat percentage. It’s calculated using IRS tax tables or the percentage method in Publication 15. Virginia state income tax also gets withheld, using Virginia Form VA-4 and the state’s withholding tables.
Social Security and Medicare taxes are split between you and the employee. You withhold 6.2% for Social Security and 1.45% for Medicare from their paycheck. Then you pay the same amounts yourself as the employer. That’s 7.65% from the employee and 7.65% from you on each paycheck. Social Security has a wage cap that changes annually. Medicare has no cap, and employees earning over $200,000 owe an additional 0.9% Medicare tax that you withhold from their pay.
You also pay unemployment taxes that don’t come out of employee wages. Federal unemployment (FUTA) is 6% on the first $7,000 of each employee’s annual wages, though you get a credit for paying state unemployment that reduces the effective rate to 0.6% in most cases. Virginia unemployment (SUTA) rates vary based on your experience rating. New employers get assigned a standard rate until they build a history.
The calculation itself isn’t complicated once you understand the pieces. The challenge is keeping up with rate changes, wage bases, and making sure you file and deposit on time. Get it wrong and you face penalties plus interest. The IRS doesn’t treat payroll tax mistakes lightly.
Most small businesses use payroll services or payroll software instead of calculating by hand. The software handles the math, generates pay stubs, and often files the tax deposits for you. Manual calculation works in theory but leaves too much room for error when you’re also running a business.
If you’re handling payroll yourself and the numbers aren’t making sense, or you’re not sure whether you’re depositing on time, it might be worth talking to someone who provides bookkeeping services in Richmond and understands payroll requirements. Fixing payroll mistakes after the fact costs more than getting it right from the start.
Greater Richmond's Small Business Bookkeeper
The Next Step:
A Short Conversation
Fifteen minutes to tell us what you're dealing with. We'll let you know how we can help and give you a clear price quote.
More Questions
Will I get in trouble with the IRS for falling behind on my books?
Falling behind on bookkeeping itself doesn't trigger IRS penalties. The problem is what happens next. Messy books lead to inaccurate tax returns, missed deductions, and late filings. Those are what create real trouble.
Read answerWhy doesn't my Amazon deposit match my sales total?
Amazon deposits are the net amount after fees, not your gross sales. Referral fees, FBA fees, storage charges, advertising costs, and refunds all get deducted before the money hits your bank account.
Read answerHow long should I keep business receipts and invoices?
Seven years is the safe default for most business records. IRS requirements vary from three to seven years depending on the situation, and some documents like formation papers should be kept permanently.
Read answerWhat is sales tax nexus and does it apply to me?
Nexus is the connection between your business and a state that requires you to collect sales tax there. Most local service businesses only have Virginia nexus, but if you sell products online or into other states, you may need to collect and remit sales tax elsewhere.
Read answerHow do I set up job costing in QuickBooks Online?
Enable the Projects feature in QBO Plus or Advanced, then configure your chart of accounts to track costs by category. The software setup is straightforward but the structure you choose determines whether your job reports are actually useful.
Read answerHow often should I update my books?
Weekly is the standard for most small businesses. Monthly is the minimum. Going longer than a month means losing context on transactions and letting errors compound.
Read answer
