Toast Payroll: Federal Income Tax & State Income Tax Calculations

In this Article:

• Employer Taxes
• Employee Taxes
• Update Form W-4 Information
• Federal Income Tax (FIT) Calculation
• State Income Tax (SIT) Calculation

Employer Taxes

Employee and employer taxes are calculated in the system based on inputs that are collected during the onboarding process. What employers will actually need to pay depends on several factors including, but not limited to, business type, size, location, and employee wages. Toast Payroll cannot advise on how much tax an employer will pay. Contact a licensed professional for more advice.

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Employee Taxes

Employees (not contractors) are responsible for informing employers how much income tax should be deducted by filling out Form W-4 (a form they should complete as a new hire and update as needed through their employment). What employees will actually pay for federal and state income taxes depends on, among other things, how the employees have filled out their federal and state Form W-4s. Toast Payroll cannot advise on how much tax an employee will pay. Contact a licensed professional for more advice.

If an employee wants to test out different Form W-4 inputs, there are several resources online:

• Employees can use the Internal Revenue Service's (IRS) withholding calculator, Publication 15-T, and other IRS resources on Form W-4s to better understand how their tax elections will impact their paychecks.
• The quick calc feature lets employers calculate the taxes for an employee based upon the earnings, deductions, and system settings (including Form W-4 elections) that Toast Payroll has in the system for them. Employees can work with their employer to perform quick calcs.
• There are many paycheck calculators online that employees can use to check potential tax amounts against a set of inputs. However, there are several reasons why these amounts may not match the outcome of a payroll submitted via Toast Payroll.
   

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Update Form W-4 Information

Toast Payroll cannot advise employers or employees on how to complete Form W-4s. If changes need to be made to an employee's Form W-4, learn more in Toast Payroll: Update Form W-4 Information.

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Federal Income Tax (FIT) Calculation

FIT is withheld from employee earnings on each payroll. The withholding is calculated using the following information from an employee's Form W-4:

• Amount earned
• Employee's marital status
• Employee's withholding allowance amount
• Any miscellaneous withholding amounts specified by the employee

The Toast Payroll system will calculate FIT based on Form W-4 information entered in the system, current Toast Payroll settings, and current IRS tax tables. Changes to pay rates, earning codes used, pay frequencies, and home addresses, among others, are the most common reasons for employees seeing increases or decreases to their Federal Income Tax on their paystubs.

There may be cases where an employee's gross pay during a pay period is low enough that they land in the lowest tax bracket of Publication 15-T which does not withhold FIT, so employees may see no federal income tax withheld. Contact a licensed professional for more advice. Toast Payroll cannot advise on how much tax an employee should be withheld or how much they will pay during individual tax filings.

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State Income Tax (SIT) Calculation

SIT is withheld from employee earnings on each payroll. The withholding is calculated using the following information:

• Amount earned
• Employee's marital status
• Employee's withholding allowance amount
• Any miscellaneous withholding amounts specified by the employee

The Toast Payroll system will calculate SIT based on Form W-4 information entered in the system and the state's tax tables. Changes to pay rates, earning codes used, pay frequencies, and home addresses, among others, are the most common reasons for employees seeing increases or decreases to their State Income Tax on their paystubs.

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This content is for informational purposes and is not intended as legal, tax, HR, or any other professional advice. Please contact an attorney or other professional for advice.