Understanding Payroll Deductions to Avoid Costly Mistakes and Enhance Compliance

Payroll involves more than paying your employees on time. One essential role in your payroll is making proper deductions and remitting the same to the relevant authorities on time. Unfortunately, most small businesses don’t have the time and expertise to make accurate payroll deductions, leading to unnecessary fines and penalties. 

Don’t crack your head over your payroll management. Instead, engage a professional firm to help streamline your payroll to avoid costly errors. If you are in Rancho Cucamonga, California, please contact Whyte & Associates, Inc. for payroll management services. The team has the experience and skills to create the payroll, make accurate deductions, and stay updated with any changes.

What are payroll deductions?

Many people confuse payroll tax with income tax. Most people know “income tax” is tax from individual or business income. However, the payroll tax is often unknown, and when non-tax-savvy people hear of it, they think it’s referring to income tax.

A payroll deduction is a predetermined amount taken from an employee’s paycheck and remitted to the relevant authority by the employer. The amount left after the payroll deductions is the net wage the employer pays the employee. 

Types of payroll deductions in California

California has several payroll taxes — the employer pays some, while the employee pays the others. These taxes are computed using different rates. 

These are the types of payroll deductions in California.

• Unemployment Insurance (UI) tax: This tax cushions unemployed persons — through no fault of their own — by paying some benefits within a set period. UI is the employer’s responsibility, where you pay a percentage on the first $7,000 wages paid to an employee in a calendar year.
• Employment training tax (ETT): This tax helps California’s labor market by providing funds to train employees in targeted industries. This tax is the employer’s responsibility.
• State disability insurance (SDI) tax: This tax is deducted from the employee’s wages and is used to pay benefits to a worker for inability to attend work because of a non-job related disability. SDI also funds Paid Family Leave (PFL) to benefit workers who can’t work as they care for an ill family member or bond with a newborn child.
• Personal income tax (PIT): PIT is tax paid by California residents and non-residents for income earned within the state. This tax is used to construct roads, build public schools and hospitals, and pay for human services. PIT is deducted from the employee using a predetermined rate on the employee’s form W-4 or DE 4. This tax has no maximum amount. 

Payroll management can seem daunting, overwhelming, and challenging because of the different variables and the constantly changing tax laws. Unfortunately, ignorance of tax law is no bliss — when you make payroll errors, your business suffers hefty penalties, even if the mistakes were genuine. Don’t slow your business’ growth because of non-compliance penalties. 

Instead, hire the services of a professional accounting firm like Whyte & Associates, Inc. for affordable, timely, and accurate payroll management services. You can reach us at (909) 575-0080.

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