The amount of taxes and deductions withheld for each pay period depends on the tax rates for the state that your business is located in. All employers and their employees, or your team members, must report their taxable wages, also known as "subject wages." Payroll taxes are calculated, deducted, and withheld by employers, depending on the tax type and the current tax rates.
Pre- and post-tax deductions are calculated as follows:
|
Payroll Tax |
Calculation |
|---|---|
|
Federal Income Tax, also known as Personal Income Tax (PIT); paid by employees only. |
Publication 15-T* (see pages 5-6 for automated payroll systems) |
|
Social Security tax, mandated by the Federal Insurance Contributions Act (FICA); paid by both the employer and employees. |
Subject Wages x Social Security rate = tax withheld |
|
Medicare tax; paid by both the employer and employees. |
Subject Wages x Medicare rate = tax withheld |
|
Federal Unemployment Tax (FUTA); paid by the employer only. |
Subject Wages x FUTA Rate = tax withheld |
|
State Income Tax; paid by employees only. |
|
|
State Unemployment Tax (SUTA) or State Unemployment Insurance (SUI); paid by employer only. |
Subject Wages x SUTA rate (varies for each company) = tax withheld |
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