What is the difference between gross and net pay?

Gross pay is the total amount an employee earns before any deductions. Net pay is the amount the employee takes home after deductions such as taxes, health insurance premiums, and contributions to retirement funds.

How often should payroll be processed?

Payroll can be processed weekly, biweekly, or semimonthly. Employers must ensure their payroll schedule complies with state and local labor laws.

What are payroll taxes?

Payroll taxes are deducted from an employee’s paycheck by the employer, including federal, state, and local income taxes, plus Social Security and Medicare tax.

In addition to withholding these taxes, employers are also responsible for paying payroll taxes for each employee. This includes the employer's portion of Social Security and Medicare taxes, federal and state unemployment taxes, and any applicable local payroll tax obligations.

What is the process for calculating federal income taxes on payroll?

During onboarding, every employee is required to fill out a Form W-4. This form helps determine the amount of federal tax to withhold from an employee’s paycheck each pay period. The IRS calculates the withholding based on the information provided on the W-4, including whether the employee is filing jointly or individually, along with other relevant factors.

How are payroll taxes sent to the IRS?

Businesses are required to file an IRS Form 941, also known as the Employer's Quarterly Federal Tax Return, quarterly. This form reports the income taxes, Social Security tax, and Medicare tax that businesses withhold from their employees’ paychecks.

Are payroll taxes withheld from independent contractors?

Employers are required to withhold taxes when paying independent contractors. However, businesses must file Form 1099-NEC to report payments made to independent contractors during the year.

Contractors receive their net pay, which means they're solely responsible for filing and paying the correct taxes on their earnings.