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Calculating payroll taxes with Hector Garcia 2022 | QuickBooks Payroll - YouTube
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[Music]
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how do you calculate payroll taxes we're
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going to talk all about it in this video
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hi everyone i'm hector garcia i'm a cpa
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quickbooks consultant and business owner
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i'm a big fan of intuit quickbooks and
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i'm partnering with them
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to produce this video series about
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payroll in fact i have an entire youtube
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channel
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where i have tons of videos about
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quickbooks accounting
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tax and a bunch of important small
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business topics
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hit the like button if you're interested
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in seeing more videos of these topics
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today i'm going to talk about how to
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calculate payroll taxes
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now it's important to acknowledge that
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most small business owners
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use payroll software or outsource their
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payroll
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so they don't actually see or have to
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deal with these calculations
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in order to generate a proper paycheck
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however it behooves
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every small business owner to understand
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what is happening behind the scenes
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of the payroll software or service and
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understand
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how their wage expenses are distributed
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and essentially how their employees net
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paychecks
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are calculated we're going to split tax
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calculation into two groups
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we're going to have federal and state
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and local
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additionally you will hear me talk about
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employee versus
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employer taxes because both parties
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actually incur
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tax in one way or the other when i
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mention
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employees taxes these are the ones that
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you can
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actually see in their paychecks as a
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reduction
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towards their net pay while the employer
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taxes
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are accrued by the employer
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simultaneously
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and they're not seen on the paychecks
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both of these are remitted by the
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employer as part of the responsibility
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let's start with federal taxes aka the
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irs
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employees will see in their paychecks
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three types of federal taxes
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first they're going to see federal
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withholding which is typically tied
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to the tax bracket of the employee
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depending on their income level
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and marital status there's a publication
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by the irs called
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publication 15-t that has
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information about all these tax tables
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there's also social security withholding
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which is actually split between employee
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and employer
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so the employee sees the 50 of the total
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amount in their paycheck
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as of 2021 the total rate of
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employee wages towards social security
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is 12.4
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which half is paid by the employer and
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half by the employee
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the social security withholding limit is
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to the first
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142 800 of their wages
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and after that there's no more social
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security withholding
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beyond 2021 you can expect that limit to
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increase
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every year by three to five percent as
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it has done in the past this number is
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announced and published
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by both the irs and the social security
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administration
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every year next is medicare withholding
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this is also split between employers
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and employees and the total amount is
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2.9 percent
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of those gross wages medicare doesn't
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have a limit or a cap
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like social security so it's applied at
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all income levels
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the combined tax of social security and
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medicare
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is often referred to as fica which is
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a total of 15.3 percent of the wages
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that is paid 7.65 by the employee
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and 7.65 by the employer beyond the
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matching of the fica tax that we
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mentioned here
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the employer also has additional taxes
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we have the federal unemployment tax
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often referred to as
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fura this tax in 2021
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could be as slow as point six percent
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to as high as six percent of the first
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seven thousand dollars worth of wages
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depending on the state that you're in
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and whether or not they will get a
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special credit of 5.4
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reduction if you have actually paid the
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state
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version of the unemployment taxes check
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with your state to see if the rate
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reduction
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applies in your state let's move into
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state and local tax
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unfortunately this is literally
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different across 50 states
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and numerous cities across the u.s i
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will mention the typical taxes that we
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expect to see here
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first we have state income tax
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withholding this is similar
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to federal tax withholding but is a flat
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or
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tiered percentage in several states
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however
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some states have an actual withholding
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tax table just like the irs
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also in some cases you will see a local
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tax
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levied by cities municipalities or
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counties
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charged to the employees as an
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additional income
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tax this is most typically seen in
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larger
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metropolitan areas such as new york city
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or san francisco
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for example if an employee lives in san
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francisco
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they will also pay an additional flat
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1.5 percent
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city tax on their income both of those i
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just described
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are at the employee level so they will
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see this tax
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in their pay stops as a reduction of the
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net pay
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but there's also some typical state
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taxes
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paid by the employer for example we have
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the state
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unemployment tax often referred to as
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suda employees will not see this on
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their paychecks
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also states charge additional state
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level taxes to employers
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to fund employee benefiting programs
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such as training or retraining programs
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for unemployed individuals all that
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being said it is important to point out
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that most payroll software connects
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digitally to the taxing authorities
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and receives updates regarding tax rate
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changes
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this will update the payroll system in
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real time
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so your payroll taxes get calculated
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accurately
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all these taxes i mentioned whether
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they're being paid by the employee
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through a reduction of their net
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paycheck or
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incurred by the employer need to be
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remitted by the employer
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in a proper and timely manner i'll also
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throw one last kerbal at you
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not all gross wages are subject to tax
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for example an
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employee can elect to have their health
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insurance paid by the employer
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but their portion paid through payroll
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so that portion of health insurance paid
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by the employee
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is actually not subject to payroll taxes
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a little bit more complex is the 401k
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retirement plan
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because all contributions to your 401k
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are not subject to federal attacks but
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are subject to fica
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so as you can tell every payroll item
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needs to be looked at
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individually to determine which taxes
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apply to each one
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i strongly recommend my clients to use
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quickbooks for their accounting
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with quickbooks payroll to make all
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these calculations
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seamlessly and concentrate on doing what
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they love to do
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there are hefty penalties for employers
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that do not pay
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pay late or make mistakes paying these
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payroll taxes
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so it's important to have a process in
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place to make sure these payments
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are made accurately and timely let's do
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a simple example
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let's say we have an employee in florida
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which doesn't charge
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state income tax or even local taxes
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meaning that you will not see tax
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withholding at the state level
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in the employee's check this employee
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makes a thousand dollars a week
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so let's break it down mike is single
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and works for a florida-based company
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his gross wages are a thousand dollars a
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week
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in the further withholding tax table
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according to publication
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15t his federal withholding would be 87
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then you can have social security tax
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for 62 dollars which is 6.2 percent
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of the gross wages then you will see
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medicare
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which is 14.50 which is 1.45
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of the wages and finally a net paycheck
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of 836.50
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now let's see how the employer is going
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to accrue
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their portion of tax you're going to see
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the same social security
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for 62 and medicare 14.50
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amount as a matching portion of the fica
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tax
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in addition you're going to see the
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federal unemployment tax or the food up
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for six dollars which is 0.6 of the
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first
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7 thousand dollars you're going to see
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the state unemployment tax
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which happens to be 2.7 of the first 7
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000
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so that would be 27 so the employer paid
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in
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cash 836 dollars in the paycheck
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paid 240 dollars to the irs as a
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combination of federal withholding
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and fica tax paid six dollars to the irs
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in connection to fuda paid 27
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to the state in connection to suda
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and that's a total of 273 dollars in
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taxes
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remitted to the government if you add up
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the net paycheck and the taxes paid
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that is 1 109 and 50 cents
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which is the total cash outlay by the
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employer
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which is about 10 above the actual wages
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this percent will vary greatly state by
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state
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so it's safe to estimate that the tax
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overhead for being an employer
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could vary between eight and fifteen
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percent
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so if you are in a traditionally
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employed tax
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friendly state like wyoming or south
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dakota
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your tax burden as an employer will vary
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greatly
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compared to states with much higher tax
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burdens like california or new york
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for example in california you will need
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to add the following
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state disability tax which is 1.2
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percent of their first
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128 thousand dollars in 2021
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and state income tax on the employee's
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paycheck calculation
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based on their individual income tax
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table the employer also needs to pay
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a training tax which is point one
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percent of the first seven thousand
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dollars
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in conclusion payroll taxes are not a
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walk in the park
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if you need to manage this manually but
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if you use payroll software like
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quickbooks payroll
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it would feel like it is if you have any
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questions or comments
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leave a comment below and as always
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remember to click the like button if you
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found this video
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helpful and be sure to subscribe to the
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quickbooks youtube channel
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so you don't miss out on future videos
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like this i'm hector garcia
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thanks for joining me and i'll see you
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next time
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you
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