Have a Tax Question? Ask a Tax Expert
Hi my name is XXXXX XXXXX I will be helping you today with your tax question.
I am trying to set up payroll in quick books. I am a memeber in an LLC. I am active working member and I will now be taking a salary from the business since I am a working member. How do I set up the tax rate, or better yet what are the proper tax rates that I should be withholding?
For medicare tax you have to withhold .0145 or 1.45%, for social security you must withhold .062 or 6.2%. To determine how much federal and state income taxes to withhold you must review tax tables. You first have to have them fill out a Form W4 which will put how many exemptions they have. You then need to use tax tables to determine the withholding rate. For federal withholding and state withholding on Quickbooks you should simply be able to plug in their exemptions from their W4 and then it'll populate the amounts for you
That is the federal tax table if you want to do it manually
If you tell me what state the employees are located in I can get you those tables as well
Texas. I am the only employee. I will be married with 2 dependents
Okay so you want to withhold at 4 exemptions if you are filing jointly
Are you the sole member?
Not filing jointly? Or not the sole member?
Yes Filing Jointly. NO not the only member
I am the only working member
Are you an LLC being taxed as a corporation or partnership?
Partnership I think. I file my profit share on my personal taxes with a 1065 i think
All that should have nothing to do with a payroll check
Okay if you are being taxed as a 1065 a member is only supposed to be paid on a K1 through a distribution, you are not supposed to be taking a wage, for that you should be taxed as a Corporation so it does have something to do with payroll unfortunately
Ok well we will have to change that when we file next year
If I were you I would wait to pay yourself a wage until you change that. It makes sense that you would be paid a wage since you are the operating member and putting in more work than the other members, but to do so properly you need to be taxed as a Corporation filing Form 1120, but you should make an S Corporation Election this way you can still get the K1 to report any business profits on the person 1040 Income tax of you and the members, but you can also pay yourself a wage on a W2 to compensate yourself for the work and then take that wage as a deduction from business profits before distribution on the K1
Ok. I do plan on the wage being an expense of the business before profit distribution. I understand I need to change the LLC to S corp. But I still need to know the rate for the fedral witholding
Texas has no income tax as I am sure you know so you dont need to worry about the state tax, just federal and social security/medicare
You need to use the table above that I posted, or if you have a set salary you can tell me what it is and how often you are paid and I will calculate
teh salary will be $525.00
how often? each week?
this is for 2 week. We plan to pay it semi monthly
pay on the 1st and 15th
Semimonthly, or biweekly? those are two different and I need to clarify? Every two weeks would be biweekly, but if its twice a month then its bimonthly
okay so bimonthly, give me a moment please
Quick books calls it semi-monthly
Yes same thing, in tax world it is referred to as both
For a married person with 4 exemptions earning $525 twice a month you are not required to withhold anything for income tax based on what this would equate to as annual income, however we also need to take into account what your distributions from the business will be. How much was your share of K1 business income for last year?
How would that effect the pay check?
The way the tax tables work is it calculates what your withholding will be assuming your pay check is your only source of income, so a married man with two children earning only $1,050 a month would not owe any tax because of your standard deduction and 4 exemptions, but when you combine that with business profit it may put you into positive taxable income, so you can either withhold enough from your paycheck to cover whatever your additional tax will be, or you can make quarterly estimated payments to the IRS on April 15th June 15th, Sept 15th and January 15th to cover what the tax will be, the option is yours
But this is only if your business profit and any other taxable income you may have puts you into positive taxable income.
what amount is that?
I end up having to pay taxes every year. I have more than one stream of income
I just want to make sure I do the checks correctly
If you do the checks correctly and you do not mind if you have to submit a payment with your return when you file then all you need to do is to withhold the social security tax of 6.2% for yourself, and the medicare tax of 1.45% and pay that in throughout the year on quarterly 941 returns. You do not have to withhold anything based on your exemptions. If you want to make it so you owe nothing in April of each year, you would have to do some more work to estimate what your income will be. But if you are only worried about paychecks and don't mind having to pay at the end of the year then you are not legally required to withhold anyting for income tax
ok. I do not want to do anything other than what is required to keep it legal. I do not want to mess up the books on the company with un-needed or un-necessary additions
Okay, withholding income tax to cover your other taxable income wouldnt mess up the books at all, all it would make it was so that you get less in your semimonthly check of $525, but if you can cover your tax at the end of the year just do the rates I stated for the social security and medicare, then file your quarterly 941 returns which you can use quickbooks to do and you will be set. The only reason I mentioned withholding the income tax when you are not legally required to was some people are not good at budgeting enough on the side to be able to pay the tax on their business profit at the end of the year so I always explain both options.
Keep in mind also that the tax you will have to pay to the IRS each quarter will include the total of what you withhold from your wage of 7.65% (6.2% for social security and 1.45% for medicare) and an additional 7.65% for the business's share of the FICA (social security and medicare tax) as for wage earners the total FICA rate is 15.3% and the business and the employee split it
I got that part. Is there a way to make QB auto tally this without me having to enter it every time
I believe on Quickbooks you can click a button or select an option to "memorize" the transaction and have it do it recurring for you twice a month, but I am not exactly sure how you would do it, there is definitely a way though for that I suggest contacting Quickbooks customer support or online forum as I am not an expert with that software