When you’re running your own business, you may take the liberty to do the payroll yourself. This article has information on how to do payroll yourself correctly for your business.
Do you need to handle payroll yourself?
According to Accounting Today, about half of all small business owners handle payroll, HR, and benefits themselves.
That can be overwhelming to anyone. There are regulatory issues, compliance issues, and the IRS to contend with if you make the wrong step.
Not only that but if you take out the wrong amount of tax for your employees, they won’t be happy.
How can you be certain that you’re in compliance and you’re taking out enough in taxes?
Keep reading to learn how to do payroll yourself.
Gather Your Employees’ W-4 Forms
When you brought on your employees, you should have already had them fill out a W-4 form. The main reason why you want this form is to see how many allowances they are taking. The more allowances they take, the fewer taxes are taken out.
Get Your Employer ID Number
Before you process payroll for the first time, you’ll need your EIN number. This is a number the IRS uses to identify your business.
If you don’t have one, you can go to the IRS website to get an EIN number.
Payroll taxes will have to be calculated to determine how much in taxes will be withheld. There are two taxes that are standard.
The Social Security tax is 6.2% until they earn more than $128,700. The Medicare tax rate is 1.45%.
After you calculate those, you’ll have to take out federal, state, and local taxes.
You can use a few resources to calculate payroll taxes. The first is the IRS Withholding Calculator, and the second resources would be your state’s withholding calculator. The third potential resource is a withholding calculator that is from an accounting firm or is included in a software package.
If you’re calculating withholdings on an Excel spreadsheet, make sure that you’re using one with formulas that have the correct percentages.
Print & Deliver Paystubs
Now that you have the process completed, you’re going to have to let employees know how much they made, and how much taxes were taken out of their pay.
The easiest way to do that is with a printable check stub template.
With the template, you just fill in the information and print it out. You can then mail or hand deliver to your employees.
File Taxes and Tax Forms
At the end of the month or quarter, you’ll have to pay taxes to the federal, state, and local jurisdictions. Remember that your employees pay half of Medicare and Social Security through withholdings. You pay for the other half.
At the end of the year, you’ll do your annual tax filings and distribute W-2 forms to your employees that show the total amounts earned and withheld.
How to Do Payroll Yourself
If you’re among the majority of business owners who elect to do payroll themselves, you know that it can be a time-consuming process.
It takes time to learn how to do payroll yourself. By using some of the top accounting software, payroll can become a very easy task to do on your list.
For more great accounting tips, be sure to read our blog about accounting.