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What payroll deductions should I be aware of when preparing payroll taxes?
What are the most important ones, and which ones do people normally forget?
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3 Answers
You will find a good overview of the basic rules with links to various resource sites including IRS Circular E covering Federal employment taxes on taxes.about.com (link provided below).
There are statutory required deductions for federal income tax, social security, medicare tax. State and possibly local income tax withholdings are also required. Every state is different. You will also find a link to payroll rules for each state on taxes.about.com below.
If employers do not use a payroll processing service, they may easily forget the state and local taxes. Most people know about the Federal taxes. The biggest concern is that employers forget to deposit the taxes withheld on time with the IRS and/or state and incur penalties and interest.
It is best to use a payroll service bureau or hire a bookkeeper with payroll tax experience.
Linda - Thank you very much for your response. It has been very helpful.
As you are in CA, state disability tax is another one to be sure is deducted.
If the company is doing well enough to have a 401(k)/profit-sharing plan, you have to follow employees' wishes regarding withholding for their contributions.
If an employee is subject to garnishment of wages, you have to deduct and remit the proper amount to the agency entitled to the funds.
As Linda pointed out, unless the company has a payroll expert on staff (and even then), using a reputable payroll processing service will save countless headaches and hours on the phone with the tax agencies.
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