How to Calculate Salary Expense
As a business owner, the salary you pay employees is a deductible expense on your income tax return. To properly report your expenses, you must separate company expenses for salaries from employees’ salary expenses. Amounts you withhold from your employees’ pay for state and federal income taxes and amounts you deduct at the direction of an employee for health insurance premiums, for example, are employee expenses.
Calculate the gross pay of each employee for each pay period you wish to include in your expense calculations. Include payments for regular salary, bonuses, commissions and overtime.
Calculate your employer Social Security and Medicare tax contributions. You must pay 6.2 percent of an employee’s gross pay toward Social Security taxes and 1.45 percent of an employee’s gross pay toward Medicare tax. Your employee also contributes to these taxes, but do not include any employee contributions in your calculation. To simplify this step, multiply your total gross pay calculation for the period you analyze by .0765. The result is your total employer expense for Social Security and Medicare.
Add the total gross salary and Social Security and Medicare tax contributions. The result is your salary expense for the period you analyze.