As an employer in the state of Michigan, deducting the state payroll tax from employee taxable wages is just a part of the process. Being a new business owner can be difficult in many aspects, so automating time consuming processes may alleviate some of the time consuming tasks. Calculating the Michigan state payroll tax can be summed up in four simple steps.
Begin by calculating each of your employee’s gross wages for the pay period in question. Then subtract all applicable deductions the employee had requested before taxes. Beware that certain items may be exempt from the Michigan state income tax such as retirement contributions and health insurance. Your final number will be the gross income used for tax calculations.
Have a copy of the Michigan withholding tax tables in front of you. Current tables are always listed on the Michigan Government website in the Michigan Taxes section of the Department of Treasury. Once you have located your payroll frequency on the matching table, search for line six of your employee’s Michigan W4 form. This is the number of state exemptions for that particular employee.
You then should look up the portion of the employee’s gross wages subject to tax. This is found in the “At Least” / “But Less Than” columns. By scrolling across the row to the same number of employee exemptions from their MI-W4 form, the number shown in that column/row will be the amount used to deduct for the Michigan income tax. (Remember: If your employee has claimed 0 exemptions, you still need to automatically withhold 4.35%. Additionally, if the employee has claimed “Exempt” on line eight of their MI-W4 form you should not deduct any state income tax.)
Great job – you’re almost done! Now take a look at line seven of your employee’s W4 form for Michigan. Check to see if the employee has elected an additional withholding amount here. If they did elect an additional amount, add that amount from line seven to the tax calculated from the income tax withholding tables.
So there you have it! Calculating your payroll deductions for your employees isn’t so difficult when you have all the steps in front of you. If your company is just starting out and your employee count is minimal, the payroll process really doesn’t take up too much time of your work week. However, other business owners prefer to take control of almost all functions of their business making running payroll more than a simple “to do” task. Similarly, CEOs and business owners of medium to larger size business just don’t have the time to run the payroll calculations for all employees.
This is where payroll software can be extremely useful in relieving the burden of these tasks. Payroll software assists business owners and HR employees in the automation of payroll deductions and payment, attaching tracked hours with timekeeping directly into the payroll software itself. It’s just a matter of comparing the benefits of each process that would best fit your business model.
Resources: Chron - Small Business
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