Payroll tax: What is it and how to calculate it?

Payroll tax: What is it and how to calculate it?

If you are a business owner in Australia, you will need to stay on top of all payroll tax details and obligations. You may be wondering what Payroll Tax is, how it works and how much it costs to withhold it from your employees’ wages. In this post we will look at the basics of Payroll Tax along with some tips for managing cashflow and filing your tax return correctly so as not to incur any penalties down the track!

If you are employer in Australia, you are responsible for withholding a portion of your employees’ wages to cover their taxes. This process is known as “payroll tax”.

Payroll tax is a tax on wages that employers in Australia are required to pay. It does not apply to employees, but rather to their employers. The amount of payroll tax that must be deducted from an employee’s wage depends on their taxable income (that is, how much the government considers them to be worth).

In general terms:

  • The amount withheld from each employee’s wages will vary based on their taxable income; this amount is known as withholding tax rate or “payroll rate”. For example, if you have earned $500 per week and your taxable income was $30 000 per year then your withholding rate would be 30% (1/2 x 30 000).

What is Payroll Tax?

Payroll tax is a tax on wages paid by employers to workers. It is not the same as income tax, which is a flat rate used to pay for government services such as healthcare and education.

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Payroll taxes are calculated based on how much money an individual makes per month or quarter before deductions are made (in some cases). The rate of payroll taxes varies depending on your state or territory in Australia, but it’s typically around 15% of your gross salary per year.

Who Needs to Pay?

You may be wondering if you need to pay payroll tax on your employees. The answer is yes, but only if the following conditions are met:

  • You’re an employer or self-employed person who pays wages to one or more people.
  • Your company is a business in the United States and you’ve been issued a W-2 for each employee working for you during 2017 (or its equivalent).

If this sounds like something that applies to your situation, then let’s review how to calculate payroll taxes so that we can get started!

The Threshold

The threshold is the minimum amount of money you must pay in wages to be required to pay payroll tax. The national average is $450 per month, or $22,000 per year. This number will change each year based on inflation and consumer price index changes; however, it’s adjusted annually so that it remains constant over time.

In order to calculate how much your company owes when calculating payroll tax liability:

  • Divide total wages paid by 12 (or 12 consecutive months)
  • Multiply that amount by .0325%

Calculating Your Payroll Tax

Calculating Your Payroll Tax

If you’re a small business owner, you may have heard of the payroll tax. It is a federal tax that employers must pay for each employee on their Form W-4 and report to the IRS. The amount of this tax depends on your employee’s earnings and whether your company has more than 200 employees at any given time (as opposed to just one).

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The first step in calculating your payroll tax is deciding how many people are going to work for your company this year. This can be tricky because there are certain factors involved in deciding how much money should be included as “wages earned” according to IRS guidelines (for example: Do I include vacation pay? If so how much? Should I include bonuses?). Once those decisions have been made though, we can get down into detail about what constitutes each type of income received by a worker during their employment relationship with yours—and then add them all together!

When Must You Submit Your Payroll Tax Return?

If you are a new employer or have not yet filed your payroll tax return, then you must submit it within five days of the end of the month. The first payroll tax return is due on or before January 31 and must be filed no later than February 28 each year.

If you were paid more than $126,000 in wages during 2018 (or January 1 – December 31), but did not use an EITC calculator to determine how much credits can be claimed on your return, now may be a good time to do so!

Managing Your Cashflow – Payment Arrangements

Before you start paying your tax obligation, it’s important to know what this means and how much you will have to pay. The ATO has a number of payment arrangements available for taxpayers who need help managing their cashflow.

The most common arrangement is known as ‘pay as you go’ and involves setting up a direct debit from your bank account each month into the Australian Tax Office (ATO). You can choose either fortnightly payments or monthly instalments – whichever suits your circumstances best.

If a direct debit isn’t suitable for you or if there are any other reasons why one might not be right for your business, then there are other options:

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How to Register for Payroll Tax

The first step in calculating payroll tax is to register with the ATO. You will need to provide your ABN, bank account details and contact details as well as other information that the ATO may request.

When registering with the ATO you will also be required to provide your business details including:

  • Name of business or entity (if applicable)
  • Tax file number (TFN)

How to File Your Payroll Tax Return

You can file your payroll tax returns online or by post. If you choose to file by post, you will need to include the following documents with your return:

  • A completed W-4 form (this is a copy of your federal income tax return)
  • A copy of your annual Form W‑2 and any attachments that are necessary for processing the transaction
  • You may also want to keep copies of other important documents like pay stubs and statements from banks or other financial institutions where you receive money from work.

As a business owner, you will need to stay on top of all payroll tax details and obligations. Seek professional advice if in doubt about the process.

As a business owner, you will need to stay on top of all payroll tax details and obligations. Seek professional advice if in doubt about the process.

If you’re unsure about how much of your employee’s income is taxable, let them know that they can call the Canada Revenue Agency (CRA) at 1-800-959-8281 or visit their website at www.cra.gc.ca/fr/flexicurity/payroll_taxes.html for help with calculations based on their 2016 return or contact us!

Conclusion

With the right information and resources, you can manage your payroll tax obligations. It’s a complex process but fortunately there are plenty of tools out there to help keep you on track. As always, if you need any additional help please do let us know at hello@cashflowfactory.com

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