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I might soon be employing a single person, paying them $2000 every two weeks. How much should I be withholding? Can someone share how to perform these calculations (so in case it changes I can adjust) and what is the final breakdown? This is in California, USA.

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  • 2
    Is this a permanent salaried employee, or a short-term contractor?
    – nick012000
    May 26 '20 at 2:50
  • It's a permanent employee, but not salaried.
    – gruszczy
    May 26 '20 at 15:36
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For the federal tax, start by looking at IRS Publication 15, the Employer’s Tax Guide. The withholding tables that you would use are in IRS Publication 15-T, Federal Income Tax Withholding Methods.

Your state will have more requirements and forms that will need to be filled out. I have no experience with California.

Payroll is a very complicated subject. If you are new to it, the easiest way is to either use a payroll service from your accountant or subscribe to a software payroll service such as Quickbooks, which will calculate all the tax and withholding for you and ensure that you submit the right forms to the governments.

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For California it's the EDD (Employment Development Department) which will have the state withholding info, including tables. There are different types of employers, so look up your type and the appropriate table on the EDD site. For example a household employer may just withhold annually whereas another employer may withhold quarterly. For California the employer will withhold state income taxes and state disability insurance from the employee, meaning that the employee has a share. Employer is also on the hook for unemployment insurance and the employment training tax (ETT). Some cities have additional taxes, for example San Francisco on higher incomes. DE-44 is the guide for most employers. If this is your first time as an employer you'll register with the EDD & feds, get an EIN, collect the I-9 for your employee, have them fill out their W-4 to more accurately withhold.

For Federal it's Pub 15 and Pub 15-T. Fed withholding will include Social Security, Medicare, and federal income taxes. Normally Social Security and Medicare are split 50/50 between employer and employee share.

So all-in you'll have line items for: federal income tax, medicare, social security, state income tax, state disability. You'll also be on the hook for UI and ETT. There are special cases such as cities that have additional taxes or workers that will not owe Social Security, different rules for certain types of employment such as agricultural, but these 7 items will cover most cases.

EDIT: here is a specific example given a Married Filing Jointly claiming 2 for California and Married Single Earner w/ the new 2020 W-4 for Federal using that $2,000 bi-weekly case from the question.

  • Gross paycheck of $2,000 bi-weekly equates to annual gross $52,000 (a given calendar year will have 26 or 27 bi-weekly paydays); we use this gross to look up taxes if given an annual table.
  • Federal standard deduction = $496.15 (no allowances for a 2020 W-4)
  • State standard deduction when claiming 2+ = $349.00
  • CA SDI = $20.00
  • Federal Income Tax (FIT) = $110.35
  • Medicare = $29.00
  • Social Security = $124.00
  • State personal allowance = -$10.32 (i.e., a credit)
  • Net paycheck = $1697.13

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