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15760 Ventura Blvd, Suite 610 Encino, CA 91436
FREE CONSULTATION818-436-2775
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Personal, Affordable Payroll Services, Bookkeeping, and Tax Processing for Small Business throughout Los Angeles County.

How to Calculate Payroll: Calculating Gross Wages and Payroll Taxes

calculating payrollCalculating payroll can be a bit confusing for some individuals. With quality tax accounting firms in Los Angeles, many business owners choose to outsource these efforts to a payroll partner. Even still, it is still beneficial to understand the process, which can be broken down into 5 steps:

 

1. Determine Gross Wages

The gross wages calculation is determined by whether the employee is salary or hourly. A salaried employee’s wages are calculated by dividing the annual salary by the number of pay periods in the year, adding any other pay (reimbursements, bonuses, etc.) and subtracting unpaid time off. Hourly employee’s wages are figured by calculating the hourly pay up to 40 hours, and overtime pay for any hours worked beyond the initial 40 hours, then adding the two plus any other pay received.

 

2. Check Employee W-4 Forms

Each employee should have a W-4 form on file, which notes the employee’s tax withholdings. If there is no form, then you assume that the employee has no withholdings.

 

3. Calculate Employee Withholdings

You can determine an employee’s federal income tax withholdings utilizing the employee’s W-4 form and the calculator provided by the IRS.

 

4. Calculate Employee Contributions

The amount of each contribution can be gathered from the IRS, or one of the local accounting firms in Los Angeles. There are several contributions that must be calculated, which include:

 

  • Employee Social security taxes
  • Employee Medicare tax
  • Employee UC
  • Employer Social security and Medicare
  • Medical Insurance

 

5. Calculate State and Local Tax

This can vary depending on the percent for the specific state your employees live in, if they do not reside in California.

 

As you can see, the process for calculating gross wages and payroll taxes can be quite lengthy and a bit complex. Understanding the process is important, however if you are not experienced with filing taxes it is best not to go at it alone. Tax accounting firms in Los Angeles are there to handle the process with strong expertise and efficiency, taking the burden off of your hands.