What are payroll taxes? What does it cost to hire Employees? – Singletrack Accounting

When hiring Employees, generally you must plan for 4 costs:

1- Gross Pay to Employee
The EmployER's cost is the Gross pay
(EmployEE's pay their share of payroll taxes and other deductions out of this gross pay amount)

2- Additional 8% Social Security and Medicare taxes
EmployER's pay half of Social Security and Medicare tax on behalf of each employee
(EmployEE's also pay half of Social Security and Medicare tax out of their Gross Pay)

3- Additional Federal and State Employer Unemployment Employer taxes
EmployERs pay $42/per employee to the fed
(State Unemployment taxes vary)

4- Workers Comp Insurance as required by State Laws
Check with Insurance providers for a quote.

More info on the 3 general categories of taxes associated with Payroll:

1- Income Taxes (Only Employees pay this, deducted from their Gross Pay)
"Withholding Tax" is simply Income tax that is withheld from an employee's paycheck and submitted to the IRS as a pre-payment toward Income tax. When an Employee completes the required IRS Form W-4, the answers determine how much income tax is withheld from an employee's paycheck.

Withheld income tax is a pre-payment of your annual income tax; the W-4 usually gets this amount fairly close to what the employee will owe in April. However, withholding amounts are based on very general "tax tables" and do not factor in business expenses and write-offs, other investments or personal taxable activities such as buying or selling real estate or having babies.

This is why, when an employee files their full and complete personal income tax return reporting all taxable activity, they may end up either owing additional income tax or receiving a refund from overpaid income tax.

(This is what makes Tax Planning for S-Corp owner/employees so very important. Tax Planning allows us to run all of a Small Business owner's taxable activity as it occurs, providing a far more accurate and constantly up-to-date income tax projection. With Tax Planning you always know exactly what your income tax bill will be, and you are provided multiple strategies that can reduce it. This puts you in control of your income tax bill, not the "tax man".)

2- Social Security & Medicare Taxes (half is paid by Employers, in addition to Employee Gross Pay. Half is paid by Employees, deducted from their Gross Pay)
These are also sometimes referred to as FICA taxes (Federal Insurance Contributions Act - the law that governs them). FICA payroll tax is money that is taken out of Employee paychecks to pay older Americans their Social Security retirement and Medicare (Hospital Insurance) benefits. It is a mandatory payroll deduction. This tax is a fixed 15.3% of Employee gross wages; half of it (7.65%) is paid by the EmployEE while the other half (7.65%) is paid by the EmployER.

When calculating your cost of paying an Employee, you should factor in this additional 7.65% over and above the Employee's pay rate.

3- Fed and State Unemployment Tax (Only Employers pay this, in addition to Employee Gross Pay and Social Security & Medicare Taxes)
The Federal Unemployment Tax Act (FUTA) is a payroll tax Employers are required to pay on behalf of their employees to the IRS; the tax is used to help fund state workforce agencies.

The State Unemployment Tax Act (SUTA) is a payroll tax Employers are required to pay on behalf of their employees to their state unemployment fund. These contributions provide monetary support to displaced workers.

SUTA was developed in each state alongside FUTA. While it is generally known as the State Unemployment Tax Act, some states have different names for it such as State Unemployment Insurance (SUI) or Reemployment Tax, as it’s known in Florida.

When calculating your cost of paying an Employee, you should factor in this additional Employer paid tax.

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