Company payroll taxes are confusing. One wrong move and you’re in trouble with the IRS or worse. Hiring professionals alleviates some of the pressure, but you still need to understand the basics.

Not knowing general information you leave yourself open to fraud and a whole host of other expensive hazards.

Learn everything you need to know about payroll taxes. With a quick read, you’ll understand what they are, how much employers pay, the penalties for not paying, and how to calculate them.

What are Company Payroll Taxes?

Employers are responsible for taxes on their employees’ wages. Even if you employ one person, you have to pay a company payroll tax.

It’s not a one-time payment. This term covers deducting money from employees’ paychecks for some taxes. It also applies to paying taxes for your employees out of your profits for others.

You must keep an official record of payroll taxes.


This tax comes out of your profits, not your employees’ salaries. It covers Medicare and social security. You pay 1.45% for Medicare and 6.2% for social security.


In total, you must cover 6.0%, but most states provide a 5.4% credit. For those cases, you would only have to pay 0.6%. The tax is for unemployment insurance.

Federal and State Tax

It is your obligation as an employer to withhold income taxes for your employees. You pass that money quarterly to pay for local, state, and federal taxes.

How Do You Calculate Payroll Taxes?

Calculating the federal, state, and local taxes is more complicated than the FICA and FUTA taxes. A common method for doing this calculation is the Wage Bracket Method.

Here’s a quick company payroll tax guide for the Wage Bracket Method calculation.

  • Look for the Wage Bracket Percentage Method Tables in the IRS form
  • Consult the employees W-4 to see how many allowances they claim
  • Use the gross wage of your employee found in columns A and B 
  • Remove the amount that’s in column C
  • Multiply the remaining amount by the percentage of column D
  • Check the W-4 to see if the employee requests other amounts withheld
  • Add that amount to the previous total
  • The amount you have is what you must withhold

Or you can hire a company to do the math for you, click for more.

What are Payroll Tax Penalties?

Being a few days late results in around a 2% penalty. About a week late is about 5%. A little over two weeks is 10%. 

After 16 days the IRS will most likely send you a late notice. If you don’t pay after 10 days of getting that you have a 15% penalty.

In addition to late fees, you may also have to pay TFRP fees.

Learn More About Payroll Taxes

Company payroll taxes should be done by professionals. The calculations are complicated and the penalties for doing them wrong are large. You can’t afford to do these yourself.

There’s no harm in learning more though! You should understand where your money’s going. Especially when there are serious consequences for avoiding payment.

Visit our business page for more company payroll taxes tips.