Question: How Do I Calculate Income Tax Withholding from Employee Paychecks?
Federal Income Tax Withholding: All employees must complete Form W-4 at hire to provide the information to the employer for calculating federal income tax (FIT) withholding.
How to Calculate the Withholding Amount
The amount withheld from an employee's paycheck depends on:
- The payroll period (weekly, bi-weekly, semi-monthly, or monthly),
- Whether the employee is single or married,
- The number of exemptions claimed by the employee,
- The amount of gross pay for the period, and
- Any additional amounts the employee requests be withheld.
The calculation uses a worksheet in IRS Publication 15-A, Employer's Supplemental Tax Guide. Here is how the calculation is done:
- Find the table for the payroll period your company uses. Let's say it is a bi-weekly payroll period.
- Then look for the marital status column for that employee. Let's say the employee is single.
- Then look for the amount of gross wages; this amount will be in a category of wages "at least" one number, "but less than" another. For this example, let's say bi-weekly wages are $203, which is at least $200 but less than $205.
- Finally, follow the category line across to the correct number of withholding allowances. This will give you the correct withholding amount. For one allowance, the amount of withholding is $15.49.
If the employee has requested an additional amount to be withheld, this amount is added to the withholding amount for a grand total withholding.
State and Local Income Tax Withholding
Employers must withhold state and local income taxes from employees. The process for each state varies, so check with your state taxing authority to find out what is required.
Other Ways to Calculate Employee Withholding
If you are using QuickBooks or other accounting software, you can purchase a payroll module to help you with these calculations, or you can ask your bookkeeper or accountant to do these calculations for you.
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