Employers and employees alike undoubtedly know what payroll taxes are - the taxes paid on the salaries and wages of employees. Payroll taxes finance important social insurance programs, like Social Security and Medicare, which account for the second largest source of revenue for the federal government. The total amounts to 12.4%, which is split between an employee and employer.
Sounds pretty simple, right?
Well, no payroll professional would agree.
When it comes to payroll tax withholding - the process of removing the appropriate taxes from each employee’s paycheck - numerous situations complicate the process. Manually handling payroll components further complicates the operation. But certain software can help. Payroll tax software is a complex set of software programs an enterprise, payroll provider, or HCM users to determine the correct amount of tax to withhold from their staff’s paychecks. Different programs ranging from online withholding forms to federal, state, and local tax look-up tools all help ensure a payroll professional is properly managing employee and employer taxes.
Anyone building a payroll solution from scratch or looking to improve a pre-existing one should consider a payroll tax engine.
A tax engine is a powerful calculator that calculates a laundry list of payroll taxes, including: Federal, FICA, state withholdings for all 50 states, Puerto Rico, US Territories, select local taxes, and various other payroll-related withholdings. A tax engine accounts for employer taxes, benefit taxation, and multi-state processing as well.
Taxes are based on an employer’s business location, as well as the addresses of all employees. Utilizing gecoding technology to normalize addresses to the most precise location guarantees the most correct taxes. Because taxes change frequently, updates to a tax engine occur in real time.
The start of proper withholding begins with the an employee filling out a Form W-4. The Form W-4 indicates an individual’s tax situation. It also includes his or her social security, legal name, and home address. This form affects a worker’s paycheck directly.
But what happens when an employee’s handwriting is illegible, and the payroll department enters incorrect information? What if paper forms are lost? How do you ensure paper forms are secure? That’s where online withholding forms come in. Online withholding forms are electronic W-4 tax forms (federal, state, or local) employees can fill out completely online. They’re compliant, completely automated, and quick.
For companies in certain states in America, local and state payroll taxes are simple to determine. In fact, Alaska, Florida, Nevada, Texas, South Dakota, Washington, Wyoming, New Hampshire, and Tennessee do not impose a state withholding tax. Many more don’t impose any local taxes.
For other states, they’re complex. States like Michigan, Ohio, and Kentucky have some of the most intricate taxes in the country. For example, Ohio is the only state with JEDD - Joint Economic Development District - taxes.
While these states’ individual taxes are complicated,. adding in one, or two more and trying to maintain compliance deepens the complexity. An employee can live in one place, but work in another. Or a worker may work in two different states, but only call one home.
A local tax finder that delivers a detailed withholding tax list using an employee’s resident and work addresses reduces the stress caused by the above situations. Geocoding and pinpointing addresses to an exact latitude and longitude ensures the most accurate taxes, helping payroll professionals avoid improper practices.
After employees are successfully onboarded, questions about their pay may arise. Answering these questions personally eats up a payroll professional’s time. However, that doesn’t mean they shouldn’t be answered.
Businesses place online payroll modeling calculators on their websites to help empower their staff to answer their own paycheck questions. With the most up-to-date taxes, these calculators provide the most precise answers without interrupting the payroll department’s regular work. These calculators help employees budget, work on their schedules, and provide insight into programs like 401(k)s.
The proliferation of technology takes long-withstanding processes in payroll and makes them faster and simpler. Every payroll professional encounters some type of problem throughout his or her career - but the headaches can be minimized by payroll tax withholding software. Whether it be creating a payroll system, local taxes, withholding forms, employee paycheck questions or something else - there is a type of software program out there to help companies get the correct payroll taxes with no hassle.
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