How Much Do Accountants Charge For Payroll – You know there’s a price to pay. In addition to paying wages to employees, you also have payroll tax expenses. How much does an employer pay in payroll taxes? Read on for more information on employer costs of payroll taxes.
How Much Payroll Tax Is This? The amount of payroll tax depends largely on the number of employees you have and how much you pay your employees. Why; Because payroll taxes are a percentage of each employee’s gross taxable wages, not a fixed dollar amount.
How Much Do Accountants Charge For Payroll
Payroll taxes include two specific taxes: Social Security taxes and Medicare taxes. Both taxes fall under the Federal Insurance Contributions Act (FICA) and employers.
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The rate of tax on wages is 15.3% of the employee’s gross taxable wages. Generally, Social Security is 12.4% and Medicare is 2.9%, but the taxes are split equally between both the employee and the employer.
So, how much does an employer’s payroll tax cost? Employer payroll tax rates are 6.2% for Social Security and 1.45% for Medicare.
If you’re self-employed, you must pay the full 15.3% FICA tax, plus additional Medicare tax if applicable (we’ll get to that in a minute).
Social Security taxes are based on wages. In 2021, that base salary is $142,800. The salary basis means you stop withholding and contributing Social Security taxes when an employee earns more than $142,800.
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Because of the salary basis, the maximum amount for an employer per employee for 2021 is $9,139.20 ($142,800 x 6.2%).
Keep in mind that some pre-tax deductions (eg, Section 125 plans) can reduce your total taxable wages and affect the amount you pay per employee paycheck.
For example, an employee with biweekly gross wages of $1,500 and a $500 Section 125 deduction has $1,000 in gross taxable wages ($1,500 – $500). So you calculate Social Security on $1,000 instead of $1,500:
Unlike Social Security, Medicare taxes are not based on salary. Instead, Medicare has an additional tax withheld for employees who earn more than a certain amount. In 2021, that base amount is $200,000 (single). So workers earning more than $200,000 in 2021 will pay 1.45% and another 0.9% to Medicare.
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Do Employers Pay Medicare Supplemental Tax? No, employers only pay 1.45%, even if an employee earns more than $200,000. Additional Medicare tax applies only to employees.
For example, an employee earns $250,000 a year, so the employee pays 1.45% on wages of $250,000, and 0.9% on $50,000 over $200,000.
Since the employee pays additional Medicare taxes, find the total tax amount of $50,000 ($250,000 – $200,000):
Like Social Security taxes, pre-tax deductions can affect Medicare tax calculations. Subtract the applicable pre-tax deductions from the total gross pay and contribute before calculating the Medicare tax amount.
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For example, your employee earns $1,500 every two weeks, but has a $500 Section 125 deduction. Calculate the Medicare tax on $1,000 in gross taxable wages ($1,500 – $500):
If you are self-employed, you pay the full amount of your payroll tax (also known as self-employment tax). And if you earn more than the annual limit, pay an additional 0.9% Medicare tax.
Because you don’t pay Medicare payroll, you don’t have to pay the extra 0.9%. However, you must pay the full 2.9% Medicare:
If you earn more than $142,800, stop calculating Social Security tax on wages above the wage base. If you earn more than $200,000 (single), multiply all income above the base by 3.8 percent for the additional Medicare tax.
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In addition to the payroll tax you pay, the employer also pays other payroll taxes for your employees. There are two main taxes:
*Some states (eg, Pennsylvania) include state unemployment tax as a tax paid by employees. Check with your state to see if your employees are required to pay unemployment benefits.
The federal unemployment tax is 6.0% on the first $7,000 in employee wages. However, most states and corporations receive a 5.4% tax credit and pay only 0.6% in FUTA. So the maximum amount most employers pay in FUTA per employee each year is $42 ($7,000 x 0.6%). If a company or state does not receive a tax credit, the maximum amount per employee is $420 ($7,000 X 6%).
State unemployment tax and wage bases vary by state. Generally, employers receive communication from the state about the SUTA rate each year. States base employer rates on several factors, including how long you’ve worked, the number of unemployment claims, and more. Check with your state to determine the wage base and unemployment tax rate.
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Your state may have additional taxes that you pay as an employer (for example, benefits tax). Contact your state for more information.
Get started with free payroll setup and enjoy free expert support. Try our payroll software for 30 days free and with no obligation. Are you looking to price or update your accounting services for the first time? Anyway, you might be wondering: How much do accountants charge?
A reasonable and competitive pricing is ultimately the key to gaining and retaining customers. Overpricing your services can send clients running for the hills (or into the arms of a competing accountant). But on the other hand, pricing your services too low risks your performance and weakens you.
Before you decide which pricing structure to use, consider whether your services are ongoing and how much time you spend with each customer.
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Again, it all depends on a number of factors (which we’ll discuss below). But you may want to know what other accountants charge.
So, how much do accountants charge per hour on average? What is the average salary of an accountant? Again, the average amount an accountant charges depends on their pricing structure.
Looking at average accounting costs is a good start, but your pricing is higher than the national average. You should also consider factors that directly affect the cost of your accounting services.
Ah, location, location, location. The location of your accounting firm (and the location of clients) plays a role in averaging accounting costs.
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If you offer virtual services to clients, consider their location and whether you need to adjust your rates accordingly.
Want to know more about your location and costs? Do some research to see the highest paying cities and states for accountants. For example, Indeed reports that accountants in Houston, Texas earn an average of $71,176 per year, compared to $55,232 in Los Angeles, California.
How long have you been an accountant? What kind of credentials (such as training and certification) do you have? Consider your experience and credentials when determining your fee.
The longer you’ve been an accountant, the more clients you’ve had, the more work you’ve done, and the more difficult tax situations you’ve faced. This allows for more charging.
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When promoting your accounting firm, remember to showcase your experience and references to build trust and credibility.
So, what kind of services do you and your company offer? Accounting services that are in high demand by small businesses include company formation, tax planning and consulting, auditing, bookkeeping, payroll, and consulting. The more complex the service, the more you may decide to charge.
Also consider the time frame in which you offer the services. Do you charge more if clients request services at the last minute?
Finally, the number of times a customer hires can affect pricing. For example, you can charge regular customers a lower rate than one-time customers.
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How complex is the potential or current customer’s situation? The bigger the customer’s business, the more you have to charge.
You can decide to create tiers for small, medium and large business users. For example, you would charge a company with more than 100 employees more for payroll than a small company with five employees.
When it comes to determining your accounting professional fees, there are several factors. It’s not a one-size-fits-all approach.
While we’re here to give you some quick tips for setting up fees, the process itself probably won’t be fast. Go ahead and spend time setting your prices to make sure you’re billing customers fairly.
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After you set your price, you should be ready to sell your services. You might consider offering a free consultation to talk to potential clients and highlight the value you can provide, such as saving time and avoiding costly mistakes.
We’ve put together the complete marketing checklist you need to get clients, sell your accounting and payroll services, and maximize your profits.
Get started with free payroll setup and enjoy free expert support. Try our payroll software for 30 days free and with no obligation. Day in and day out you deal with statistics, but determining your rate as an accountant or tax professional can be new territory. Maybe you’re working as a full-time employee and just starting your virtual practice. Maybe you’re just starting out in the accounting world and don’t know how to price or bundle your services.
Determining your price is one of the most important steps when you start out.
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