Payroll expenses you’re probably are getting wrong

Payroll expenses are what employers pay to hire workers. Amounts you withhold from a worker’s pay and submit to a third party are not company expenses.

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To understand these differences, review each payroll component and determine if the component is a business expense.

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Calculate gross wages from an annual salary or hourly rate of pay and hours worked. The gross wages you pay employees may be your largest payroll expense.

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You must deduct federal—and possibly state and local—income taxes from wages. The worker’s annual income and the number of allowances they specify on their W-4 determines the amount you deduct.

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FICA taxes fund Medicare and Social Security. Currently, employers pay a 6.2% Social Security tax and a 1.45% Medicare tax (7.65% in total). Each worker pays the same 7.65% tax through payroll withholdings.

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If wages are subject to a state unemployment tax, the employer can use a 5.4% FUTA credit, which reduces the FUTA tax to 0.6%.

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Payroll expenses you’re probably are getting wrong

Payroll expenses are what employers pay to hire workers. Amounts you withhold from a worker’s pay and submit to a third party are not company expenses.

To understand these differences, review each payroll component and determine if the component is a business expense.

Calculate gross wages from an annual salary or hourly rate of pay and hours worked. The gross wages you pay employees may be your largest payroll expense.

Gross wages

You must deduct federal—and possibly state and local—income taxes from wages. The worker’s annual income and the number of allowances they specify on their W-4 determines the amount you deduct.

Deductions for state and federal income tax withholdings

FICA taxes fund Medicare and Social Security. Currently, employers pay a 6.2% Social Security tax and a 1.45% Medicare tax (7.65% in total). Each worker pays the same 7.65% tax through payroll withholdings.

Deductions for FICA taxes

If wages are subject to a state unemployment tax, the employer can use a 5.4% FUTA credit, which reduces the FUTA tax to 0.6%.

Unemployment tax (FUTA and SUTA) withholdings

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Finding a financial advisor doesn’t have to be hard. SmartAsset’s free quiz matches you with fiduciary financial advisors in your area or who serve your area. If you are ready to be matched with financial advisors that can help you achieve your financial goals, take the quiz now.

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