Updated: September 25, 2023
Questions about calculating employees’ paychecks?
If it’s time to pay your employees, you’re in the right place! Our free payroll tax calculators make it simple to figure out withholdings and deductions in any state — for any type of payment. Employers can use it to calculate net pay and figure out how much to withhold, so you can be confident about your employees’ paychecks.
We also have special calculators for bonuses, final payments, or any other situation that might arise for employers. Try out our payroll calculators above or read on for a great payroll overview.
We’ll go over the basics employers need to know below, but you can also use our payroll processing guide to find definitions, tax forms, and detailed instructions for calculating payroll on your own.
To run payroll, you need to do seven things:
- Get your business set up to run payroll
- Figure out how much each employee earned
- Calculate taxes you’ll need to withhold and additional taxes you’ll owe
- Pay your employees by subtracting taxes (and any other deductions) from employees’ earned income
- Remit taxes to state and federal authorities
- File quarterly and year-end payroll tax forms
- Give your employees and contractors W-2 and 1099 forms so they can do their taxes
The calculator above can help you with steps three and four, but it’s also a good idea to either double-check the calculator by using the payroll tax rates below, or save time and effort by using a reliable payroll service.
Federal payroll tax rates
The steps our calculator uses to figure out each employee’s paycheck are pretty simple, but there are a lot of them. Here’s how it works, and what tax rates you’ll need to apply.
- Figure out each employee’s gross wages. Gross wages are the total amount of money your employee earned during the current pay period. The math works a little differently for salaried employees, hourly employees and contractors.
- Hourly employees: You’ll need to multiply the number of hours your employee worked by their hourly pay rate. If they worked any overtime hours, make sure to calculate those hours at the overtime rate.
- Salaried employees: A salaried employee is only paid a fraction of their annual salary each paycheck, so divide that employee’s annual salary by the number of pay periods you’ll have each year.
- Contractors: Advance to “Go” and collect $200! You actually don’t have to withhold any payroll taxes for contractors. Just pay them whatever’s on their invoice, but remember that you’ll need to send each contractor a 1099 form at the end of the year. Keeping good payroll records will make that process a lot easier.
- Deduct any pre-tax withholdings. Payroll taxes aren’t the only thing to exclude from employees’ paychecks. Make sure to deduct for things like health and retirement benefits. The process for documenting and remitting these funds will vary depending on your benefits providers. Note that many services can be integrated with payroll software, which allows you to automate your deductions.
- Deduct and match any FICA taxes: FICA, the Federal Insurance Contributions Act, is one of the many payroll acronyms you’ll soon get to know and love. It simply refers to the Medicare and Social Security taxes employees and employers have to pay:
- Social Security tax: Withhold 6.2% of each employee’s taxable wages until they earn gross pay of $160,200 in a given calendar year. The maximum an employee will pay in 2023 is $9,932.40. As the employer, you must also match your employees’ contributions.
- Medicare tax: Under FICA, you also need to withhold 1.45% of each employee’s taxable wages for Medicare. Employers must match this tax as well. There’s no withholding limit like the one for Social Security, but well-compensated employees who earn more than $200,000 must pay an Additional Medicare Tax of 0.9%. You don’t have to match the 0.9%, but you should include it in your withholding calculations.
- Pay FUTA unemployment taxes: Employers are solely responsible for paying federal unemployment taxes. The tax rate is 6% of the first $7,000 of taxable income an employee earns annually. If your company is required to pay into a state unemployment fund, you may be eligible for a tax credit.
- Deduct federal income taxes, which can range from 0% to 37%. Withholding information can be found through the IRS Publication 15-T.
- Subtract any post-tax deductions: Some employees may be responsible for court-ordered wage garnishments or child support. They may also choose to make post-tax contributions to savings accounts, elective benefits (like life insurance), or other withholdings.
Different state scenarios
Now that we’ve covered some quick facts about federal taxes and how they apply when using our payroll calculators, it’s important to remember that you’re likely responsible for state payroll taxes as well.
Though the rules and regulations can vary depending on where you do business, employers are typically responsible for withholding state payroll taxes from their employees’ paychecks and making sure they are remitted to the appropriate state agency.
State payroll taxes, which are usually based on a percentage of each employee’s gross income, are commonly used to fund unemployment and disability benefits for workers, and can sometimes be used toward other state-specific programs. State unemployment insurance (SUTA) is typically an employer-only payroll reduction, and companies that have employees are generally responsible for contributing once a quarter. There are some exceptions to this rule however. For instance, in the states of Alaska, New Jersey, and Pennsylvania, both employees and employers pay SUTA.
In addition, different tax rates are applied to employers based on factors such as length of time in business and even industry. For instance, some states have a separate “new employer” rate (this includes Illinois and Michigan), while others use a different tax rate for construction companies. Each state has its own:
- Taxable wage base
- SUI rates
For example, in the state of Michigan, the SUI tax rate for new employers (with exception of construction workers) is 2.7%. In addition, the taxable wage base is $9,500. In this example, an employee’s wages would be taxed at a rate of 2.7% up to the first $9,500, or around $256.50.
If you click into any state calculator from the dropdown at the top of this page, you should find your state’s current 2023 SUI and taxable wage rates listed (and links to each state’s website to make finding this information directly from the original source a little easier). In addition, you may find the state-by-state list of local tax agencies helpful if you are looking for a form (or need contact information for your state).
In the end, it’s a good idea to understand how local taxes work and your obligations as an employer. If you remain unsure about any part of local tax requirements and their application, it is a good idea to consult with a bookkeeper, CPA, or tax professional.
By now, you should know everything you need to know about payroll and payroll taxes. We recommend diving into our free calculators (which even let you print out pay stubs). Or if you’d like to make life a little easier on yourself, check out our award-winning payroll software.
For employers who do payroll themselves, we help you save over 15 hours a month by calculating your paychecks, filing all your payroll taxes (including W-2s and 1099s), handling the direct deposit payments, and a whole lot more.
This article (and mentioned payroll calculator tool) is provided for informational purposes only and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors for formal consultation.