How to Estimate Payroll Taxes

By Grace Ferguson
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Employees by law must pay certain payroll taxes. Your employer is responsible for withholding these taxes and for remitting them to the government. These taxes include Social Security and Medicare (FICA) taxes, federal income tax, and possibly state income tax. Once your employer begins the withholding, the amount is deducted from your paycheck. If you want to know ahead of time what your payroll taxes will be, there is a way to perform this estimation.

Retrieve IRS Circular E online or ask your employer for a copy to estimate your federal income tax. Use the Circular E's withholding tax tables and your filing status and number of allowances to estimate the tax. You may use either the wage bracket or percentage method. Note that the wage bracket method has a wage limit, and an allowance limit of 10. You can use the percentage method if you surpass these limits or prefer not to use the wage bracket method.

For instance, say you estimate your earnings at $560 weekly and your withholding at married/one exemption. Use the Circular E for the year you are estimating. According to page 43 of the 2010 Circular E, your federal income tax withholding would be $24 weekly.

Get your state income tax tables online or ask your employer for the rate. A few states do not charge state income states, but most do. If applicable, use the withholding tax tables for your state and your filing status and number of allowances to estimate your state income tax. State income tax rates vary by state; therefore use the tax tables relevant to your state.

For instance, say your state is Rhode Island. You estimate your earnings at $430 weekly and single/one exemption as your withholding. According to the Rhode Island state tax withholding tables, your state income tax withholding would be $11.77 weekly.

Estimate FICA taxes. For 1990 and later, the Social Security and Medicare tax rates are 6.2 percent of all wages, up to the annual wage base of $106,800, and 1.45 percent of all wages, respectively.

For instance, say you estimate your earnings at $600 biweekly.

Social Security calculation: $600 x .062 = $37.20 biweekly. Medicare calculation: $600 x .0145 = $8.70 biweekly

Add all of your federal income taxes, state income taxes and FICA taxes together to get your total estimated payroll taxes.

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