Anatomy of a paycheck

Woman paying the bills

As a business owner, time is one of your most valuable assets—and time spent handling payroll is time lost managing your growing business. Add in concerns regarding tax form filings and keeping abreast of the changing tax laws, and the task of handling payroll can become overwhelming.

At myPay Solutions, we understand how precious your time is. That’s why we are dedicated to making payroll easy. We calculate your employee checks and taxes, make your tax payments and handle your tax form filings so you don’t have to worry about all the tedious details that go into calculating and processing payroll. But have you ever wondered how it all adds up? Or maybe you’ve had an employee question why their paycheck comes out to a certain amount?

Employers are often faced with questions from employees who are concerned about having too much or too little tax withholding calculated. As an employer, you may be concerned with what your role is in regard to employee tax withholdings. 

To help you field questions and concerns from employees in regard to their paychecks, we’ve provided the following FAQs:

How are employee tax withholdings calculated?

Social Security and Medicare tax withholding amounts are calculated based on fixed percentages. Social Security tax is calculated at a flat rate of 6.20% of the taxable wages, up to the wage base limit of $118,500 (for 2016). Medicare tax is calculated at a flat withholding rate of 1.45% on the first $200,000, and an additional 0.90% on wages over $200,000.

Federal income tax withholding amounts are calculated based on three key factors.

  • The employee’s gross taxable wages (gross wages less any pre-tax deductions such as health, dental, 401k, etc.).
  • The employee’s filing status and number of allowances claimed from the employee’s W-4.
  • The employee’s payroll frequency (weekly, bi-weekly, semi-monthly, etc.).

State income tax calculations vary state by state. For further information regarding state withholding, visit the myPay Solutions State Payroll Tax guide.

(For a more detailed explanation of how tax withholdings are calculated, please contact your payroll specialist, or refer to IRS Publication 15b.)

Why weren’t any federal income taxes withheld from an employee’s check?

If an employee did not have any federal income tax withheld, they most likely did not have enough taxable income based on their filing status, number of allowances and payroll frequency to have any federal income tax withheld. Review the employee’s W-4. The employee may need to change their filing status from married to single and/or reduce their number of allowances.

Why were the federal income taxes withheld form an employee’s check unusually high?

If the employee’s federal income tax withholding seems unusually high, the employee may not be claiming enough allowances. Review the employee’s W-4. A filing status of Single/0 will apply the highest amount towards federal income tax in comparison to any other filing status/number of allowances claimed. The employee may want to change their filing status from single to married and/or increase their number of allowances.

Other factors that can contribute to unusually high federal income tax withholding on a check include additional earnings paid on the check, such as bonuses and commissions. These additional earnings may put the employee into a higher tax bracket for the check.

Can I advise an employee as to what to claim on their form W-4?

Employers should not advise employees in regards to what to claim on their Form W-4. It is the employee’s responsibility to select the appropriate options.

Please note that myPay Solutions cannot advise on this matter. Employees should seek the advice of a tax professional. If you have concerns regarding a specific employee’s tax calculations, please contact your myPay Solutions payroll specialist.

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