How does payroll work out how much tax you owe to HMRC?
Henry Morales
Published Feb 24, 2026
Your payroll software will work out how much tax and National Insurance you owe, including an employer’s National Insurance contribution on each employee’s earnings above £170 a week. You’ll need to send another report to claim any reduction on what you owe HMRC, for example for statutory pay.
When do I need to report my payroll to HMRC?
If you run payroll yourself, you’ll need to report your employees’ payments and deductions to HMRC on or before each payday. Your payroll software will work out how much tax and National Insurance you owe, including an employer’s National Insurance contribution on each employee’s earnings above £166 a week.
How does an employer calculate and withhold taxes?
The employer should calculate and withhold proper income taxes based on the withholding status declared by the employee—but ultimately, correct payment of income taxes is the individual employee’s responsibility and any under or overpayment of taxes will be theirs to resolve when they file their tax return.
When to use Publication 505, Tax Withholding and estimated tax?
Use the instructions in Publication 505, Tax Withholding and Estimated Tax. Taxpayers with more complex situations may need to use Publication 505 instead of the Tax Withholding Estimator. This includes employees who owe, the alternative minimum tax or tax on unearned income from dependents.
How does an employer withhold tax from your paycheck?
An employer generally withholds income tax from their employee’s paycheck and pays it to the IRS on their behalf. Wages paid, along with any amounts withheld, are reflected on the Form W-2, Wage and Tax Statement, the employee receives at the end of the year.
How much does the IRS owe in back taxes?
That’s okay. If you find yourself with income-tax debt, you aren’t alone. According to the U.S. Internal Revenue Service (IRS) Delinquent Collections Activities Data book, over 11 million Americans owed over $125 billion in back taxes, penalties and interest in 2019.
