Payroll taxes for startups?

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Kruze Consulting Startup Q&A Author
Vanessa Kruze Founder, CPA

Two Quick Points:

  • There’s no way out of payroll taxes. There’s no escaping it.

  • Outsource your payroll processing. Don’t even think about doing it yourself. If you do it incorrectly you can incur serious penalties, and even the best people and accountants make mistakes. The software out there has become so robust and efficient that no human fingers can keep up! Using a payroll processor will save you time and money. I’ve used just about every payroll processor out there and Gusto (formerly Zenpayroll) is unequivocally the best.

Now let’s talk budgeting for those payroll taxes, because I get this question a lot. As a general rule:

  • The tax rate for employees is usually ~30%.
  • The company then gets taxed ~10% on the gross payroll.

So for a $100,000 payroll:

  • $70,000 goes to the employees bank account
  • $30,000 goes to taxes, from employees
  • $10,000 goes to taxes, from company

And those two bank debits you see after using a payroll processor? Using this example, the first debit will be $70K going to your employees bank accounts. The second bank debit will be $40K going to tax payments (which is the sum of both employee and employer taxes).

Hope this helps, but feel free to reach out to me at vanessa@kruzeconsulting.com if you have any questions. We help over 150+ startups in SF, Chicago, LA, and NYC.

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