- 1). Calculate the gross wages for each employee for each pay period by multiplying the number of hours he has worked by his hourly wage. For a salaried employee, simply enter the amount of his salary for the given payroll period into your payroll system.
- 2). Multiply your employee's gross wages by 0.042 for Social Security withholding and 0.0145 for Medicare withholding -- note, these are the withholding amounts set by the IRS for 2011. Subtract these amounts from her gross wages.
- 3). Figure the income tax deduction for an employee by finding the column in the IRS tax table that matches the number of deductions he has claimed on his W-4 forms and his gross wages for the given pay period. The IRS will mail you withholding tables when you open your account and at the beginning of each year after that. You can also find IRS withholding tables online at the IRS website (IRS.gov).
- 4). Keep the tax money that you withhold from your employees' paychecks in a separate bank account or, at the very least, keep track of it throughout the pay period so you're not surprised or unprepared when it's time to make your payroll deposits and file your quarterly tax forms. Deposit federal employee withholding taxes in the bank -- along with your employer contributions for Social Security and Medicare, which are 6.2 percent and 1.45 percent, respectively --- according to the schedule that the IRS provides for your particular volume of employment taxes. Fill out your quarterly tax forms to reconcile the amount you've deposited with the amount you actually owe.
- 5). Withhold state employment taxes according to the employment tax regulations in your particular state. Follow the same general format as for federal withholding taxes: Use the tax rate or tax table to determine the amount that each employee owes for each paycheck, subtract this amount from her paycheck, keep track of the amount you withhold, and file and pay these taxes on time.
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