Skip to main content
  • Claims Center
  • Contact Us
  • Español
  • Brokers & Agents
Hiscox Insurance
Menu Toggle
  • Home
  • Small Business Insurance Toggle Menu Toggle Menu
  • Why Hiscox Toggle Menu Toggle Menu
  • Resources Toggle Menu Toggle Menu
  • Policy Management Toggle Menu Toggle Menu
  • Claims Center
  • Contact Us
  • Español
  • Brokers & Agents
  • About
  • Get a Quote Get a Quote
  • About
  • Get a Quote Get a Quote
  • Blog Home
    Start Your Business
    Grow Your Business
    Protect Your Business
    Celebrate Courage
    Search

    Small Business Insights

    Sign up to get the latest small business news delivered right to your inbox.
    Grow Your Business
    Green and white puzzle pieces with the words, "business tax."

    3 Tips to Help Small Business Owners Calculate Payroll Taxes

    Finances | Management
    By: Hiscox Blog

    Share Image

    Embed Image

    Copy

    Share Article:

    Its time to bring out that tax calculator. It may not be fun, but calculating taxes and withholding for employees is a critical task for all small business owners. Both withholdings and taxes are dependent upon several factors  including (but not limited to) marital status, and allowances. For employers, underpaid tax liabilities can equate to fines, late payment penalties and accompanying interest. And for employees, a hefty bill could surface at tax time when they’re not prepared to cover it. If you are looking for help, payroll software providers like SurePayroll offer several tax calculators on their websites to help you get started.” Whether you plan to pursue help or go it alone, you should review our detailed breakdown of top tips to consider when it comes to each component of payroll taxes and withholdings.

    1. Federal and State Income Tax

    Each time a new employee comes on board, have him or her complete a Form W-4. The inputs, including marital status and allowances, determine the amount of federal income taxes to be withheld from the employee’s wages each pay period. If your employee is unsure of how many allowances to claim or needs additional assistance completing the form, refer him or her to the  federal withholding calculator on the IRS website. Assuming your employees are also subject to state taxation, additional information about income tax withholding can be retrieved from your state's Department of Revenue. Key tip: In the event you are unsuccessful at retrieving a completed Form W-4, the IRS recommends classifying the employee as single with zero allowances when computing the amount to withhold.

    1. Social Security and Medicare Withholding

    The Federal Insurance Contributions Act (FICA) is responsible for the implementation of Social Security and Medicare taxes. Here’s how to calculate these important withholdings:

    • Social Security withholding. Both the employer and employee must contribute 6.2 percent or 12.4 percent total. Earnings of up to $118,500 are subject to social security withholding. Any amounts over this threshold are exempt.
    • Medicare withholding. Both the employer and employee must contribute 1.4 percent. All earnings are subject to taxation.
    • Additional Medicare tax. If the employee is paid more than $200,000 in wages, any payments over this amount are subject to additional Medicare tax withholding of 0.9 percent.
    1. Federal and State Unemployment Tax

    The Federal Unemployment Tax Act, also known as FUTA, mandates withholding of 6 percent. However, employers may also be eligible for a credit up to 5.4 percent, which would subsequently decrease withholding to 0.6 percent. FUTA withholding only applies to the first $7,000 in employee wages. It’s important to note that employees who generate earnings in Alaska, New Jersey and Pennsylvania must also remit payment for federal unemployment taxes. Key tip: To learn more about FUTA and how it should be computed, take a look at the 2014 Instructions for IRS Form 940. In addition to the federal unemployment tax, employers are also responsible for State Unemployment Insurance (SUI). With the proper resources on hand and knowledge of the tax code as it relates to your responsibilities, you can ensure withholdings for payroll taxes are calculated properly. Luckily, there’s technology that can make this easier for you. Consider using a software to streamline this process of even consult a small business accountant. It just might be worth it.

    Protect Your Business

    Protect the business you’ve worked so hard to build. Get a fast, free quote and your business could be covered today.

    Get a Quote
    Get a Quote
    Subscribe to our newsletter

    Related Articles

    4 Min Read
    Artificial intelligence (AI) chatbox robot - how can small businesses use these tools

    Is ChatGPT the next big thing for small business? What you need to know

    Technology | Tools & Templates

    There have been a lot of predictions about what ChatGPT can do. See how AI could help your small business save some time and improve communications.

    Read More

    4 Min Read
    small business owners work out finances during inflation on a whiteboard

    3 Tips small businesses need to know when facing inflation

    Finances | Management

    Right now, inflation is higher than it has been in several decades, and everyone is feeling the pinch. Here's how small businesses can survive – and even thrive – when prices are on the rise.

    Read More

    3 Min Read
    couple looking at small business tax deadlines while sitting on couch

    When are 2023 small business tax deadlines? Download this free calendar

    Finances | Management

    Businesses need to stay on top of tax deadlines year-round, we’ve made it easy with this handy calendar that shows what is due and when. Track when to submit payroll taxes, issue 1099s, and more.

    Read More


    We’re here to help.
    We provide tailored insurance for the specific risks you face, so you can take the right risks to grow your business.
    Get a Quote
    Get a Quote

    Footer menu 1

    • What We Cover
      • Business Insurance
      • General Liability Insurance
      • Professional Liability Insurance
      • Errors and Omissions
      • Cyber Security Insurance
      • Workers Compensation
      • Other Coverage
    • Who We Cover
      • Small Business Owners
      • LLC
      • Sole Proprietors
      • Entrepreneurs
      • Side Hustle
      • Contractors
      • Home Businesses
    • For Our Customers
      • Refer a Friend Program
      • Covid-19 Response
      • Claims Center
    • For Business Owners
      • Save with our Partners
    • About Hiscox
      • About Us
      • Careers
      • Contact Us
      • Hiscox Corporate
      • Investors
      • Foundation
      • Newsroom
      • We Stand Together
      • Affiliate Partner Program

    Footer menu 2

    • Accessibility
    • Site Map
    • Privacy Policy
    • Terms of Use
    • Legal Notices
    • Español

    Do Not Sell or Share My Personal Information

    Feefo Reviews: Hiscox rated 4.7/5 with 1,067 reviews between January 1, 2022 - January 1, 2023

    © 2023 Hiscox Inc. All rights reserved. Underwritten by Hiscox Insurance Company Inc., 30 N. LaSalle St., Suite 1760, Chicago, IL 60602. As of December 31, 2022, HICI had admitted assets of $1,458,861,470 and policyholders surplus of $380,056,863. Total liabilities were $1,078,804,607 (inclusive of $529,538,410 of loss reserves) and paid-up capital stock was $4,242,000.

    icon-facebook
    icon-youtube
    icon-twitter
    icon-linkedin