Withholding taxes for your sales teams
Withholding taxes for your employees is common practice in the United States. This is where you as an employer withhold a certain amount from your employees' paychecks; the amount that you have withheld is then given to the proper taxing authorities. Types of withholdings include Social Security, Medicare, federal income taxes, and state income taxes. Depending on what state your sales team is working in you may or may not have to withhold state income taxes, so before withholding state income taxes you need to check the state's tax laws.
With a sales team you will have to decide how you are going to pay them. Are you going to offer them strictly base pay or are you going to offer them commission pay, or are you going to use a combination of both pay types. Companies who use the combination usually give the employees a low base pay, this way they will still be getting paid for working, but then if you give them commissions they will be getting rewards for going above and beyond. After deciding this you are going to have to decide if you want to limit the amount of commissions, which is called capping, or if you want to leave that amount open so that they can earn as much as they want. Regardless of which pay type you choose withholding taxes is the same. Taxes get withheld on base pay and on commissions.
Have every member of your sales team fill out a W-4. This will determine how much taxes you as an employer must withhold from the employees paychecks. If your employees are exempt (which they must meet two conditions to be considered exempt: the previous year they had all of their federal income taxes refunded to them because they had no tax liability and this year they expect the same thing to happen) they only need to fill out lines 1 through 4 plus line 7 and they must sign the form. Most employees are not exempt from withholding income taxes so they must complete both the worksheet and the bottom portion that you as an employer keep for your records.
Now you need to determine the proper amount of federal income taxes to withhold from the employees paycheck. You can do this by using a two different methods. The first method is the wage bracket method. With this method you will need to use a table that is provided by the Internal Revenue Service.The first step is to find the proper table based on the employee's material status. After finding the proper table then based on the amount of withholding allowances claimed on the W-4 and how much their gross wages are you can find the proper amount to withhold.
The second method is the percentage method. In this method you use a percentage computation that is provided by the Internal Revenue Service and use an appropriate rate table. To figure the amount based on percentage you will have to multiply the number of allowances the employee claims by one withholding allowance based on your payroll period. You will then subtract that amount from your employee's wages and use that amount to determine the proper amount to withhold.
Depending on what state you are working in will depend on how much you need to withhold for state income taxes. For further information you will need to look at each state individually.
Social security and Medicare taxes must be withheld from everybody's paycheck. Currently the rate for Social Security is 6.2% and the rate for Medicare is 1.45%. These are set rates that are based on the employee's gross wages. These are also the only taxes that you as an employer must match. To figure out how much to withhold you need to take the gross wages and multiply them by 6.2% and by 1.45%. Just keep in mind that Social Security and Medicare tax rates can change so it is best to stay current with the tax laws and rates.