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.
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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