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.
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