Stop guessing payroll taxes: How small business owners can get the numbers right

This article was paid for by QuickBooks Workforce

Does figuring out payroll taxes feel like you’re throwing a dart and hoping you land near the bullseye? You’re not alone. 

Las Vegas veterinary services professional San Priy became a co-owner of pet supplies site WeeWag in 2021 and started managing its payroll three years later.

“I assumed if I paid employees and set aside what looked like the right amount, things would work out at tax time,” Priy told CNBC Select. But he soon learned  “close enough” doesn’t cut it with the IRS.

Despite spending hours crunching the numbers, he underestimated the amount due, missed a deadline and had to pay a penalty. 

For many small business owners, Priy’s story is all too familiar. But you can help avoid missteps by understanding how payroll taxes are calculated and how to file them accurately and efficiently.

Payroll taxes are paid on the wages and salaries a business pays its employees. Some are withheld from employee paychecks, while others are paid by employers.

There are three main payroll taxes:

• The Federal Insurance Contributions Act (FICA) is a 15.3% tax that funds Social Security and Medicare. Employees and employers split the cost equally, although employers are responsible for withholding their workers’ portion.
  
• Fully paid by employers, the Federal Unemployment Tax Act (FUTA) tax funds unemployment benefits. In 2026, the FUTA tax employers pay is 6% on the first $7,000 of an employee's annual pay, though many employers qualify for a credit that brings the effective rate to 0.6%.
  
• Most states also have state unemployment tax (SUTA) that employers must pay, although rates vary widely.

Every payroll calculation starts with gross wages, or an employee’s total annual compensation before deductions such as taxes, Social Security or health insurance. From there, you can calculate withholdings for federal and state income tax and the employee’s share of FICA. 

Net pay is the amount that remains of an employee’s salary after withholdings and voluntary contributions. As the employer, you’re responsible for half of their FICA, plus federal and state unemployment taxes. 

You’ll need to keep tabs on rates, wage bases, state requirements and deadlines, which often change from year to year.

Missing a deposit deadline, even by a day, can trigger penalties and interest, according to Jonathan Brunette, CPA and co-owner of Brunette Tax and Accounting in Green Bay, Wisconsin. 

“The penalty is based on how late the payment is,” Brunette said. “The IRS can [seize] your account and  just start taking whatever money is available.” 

QuickBooks Workforce syncs with QuickBooks accounting software to calculate payroll and automatically update rates and due dates, helping reduce the risk of errors.

Everyone’s experience with payroll is different, depending on the size and nature of their business but following these tips will set you on the right course.

1. Separate payroll tax funds right away. Keeping everything in one account until a deadline looms is a good way to end up scrambling.
   
   “The biggest system change I made was separating payroll tax money immediately after payroll runs," Priy said. Treating the money as already spent, rather than as part of the company’s cash flow, has “made everything much less stressful.”
   
2. Classify workers correctly. Misclassifying a full-timer as an independent contractor is one of the costliest payroll mistakes you can make. You might even trigger an audit.
   
   “The IRS will charge all the missed payroll taxes to the business, with possible late fees and interest,” Brunette said. “The employee can also file complaints against a business."
   
   As your company grows, it can be an easy trap to fall into. QuickBooks Workforce makes it easy to understand employee classes and ensure you’re assigning your workers appropriately.

3. Know your deposit schedule. The IRS assigns businesses a monthly or semi-weekly deposit schedule for federal payroll taxes, based on their total tax liability over a lookback period.
   
   State deposit schedules don’t always align with the federal timeline but QuickBooks Workforce includes helpful reminders when any tax payments are due. Using the tool, said Priy, “helped remove a lot of guesswork.”

4. Keep thorough records. The IRS can audit payroll records for the past six years, so good recordkeeping is critical. QuickBooks will retain employee records, time cards, pay stubs, W-4s, tax returns and deposit confirmations. Organizing your records can also save you money at tax time.

“When the employee retention credit came out, the previously-filed 941 forms were critical to help businesses claim that credit,” Brunette said.

Payroll comes with a lot of moving parts. But with the right tools, it doesn’t have to be a guessing game.

“The most important thing with payroll is a good setup,” Brunette said.

To learn more about QuickBooks, click here.

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