The 12 Steps Of Calculating Federal Tax Withholdings


Calculating federal tax withholdings can be a nightmare. The IRS tax code can be very complex, and it can be very frustrating to figure out. It's a growing problem in the U.S., with the number of people underpaying taxes increasing by 40%.
And it can mean the difference between a nice refund in April and be owing money to the IRS when you least expect it. As an employer and an employee, you want to be sure that enough money is withheld from each paycheck. Read on to learn how to do it in 12 simple steps.

Also read: How Much Is Social Security tax?

Calculating Federal Tax Withholdings

Calculating withholdings can actually happen in 12 steps. We're going to start by calculating your federal taxes in Steps 1-8. In Steps 9-11, we're going to calculate your payroll withholding. In Step 12, we'll combine the two to get to your federal tax withholding.

1. Go to the IRS Withholding Calculator

The IRS withholding calculator is useful for estimating whether or not too much or not enough is being withheld. Either way, it might be time for a new W-4 form.

2. Find what's currently withheld

All you have to do is find your current withholdings from your last W-2 or 1099 form.

3. Figure out your gross income for the year

That will be located on the W-2 or 1099.

4. What's Your filing status?

Your filing status will determine your federal tax withholding rate. Your status can be:

  • Head of household
  • Single
  • Married
  • Married filing separately
  • Qualifying Widow

The most common ones are Single and Married Filing Jointly and Head of Household. The IRS says that many people mistakenly file as Head of Household.

Also read: What Is FUTA Tax - All You Need To Know

5. What are your allowances?

When you fill out a W-4 form, you'll indicate your allowances to determine how much money should be withheld from your paycheck. The more allowances you take, the less money is withheld. An allowance of 0 means more money withheld, but it also means a larger refund.

6. Claim your deductions

If your deductions are more than $6300, you should claim them. You can deduct some expenses such as health care costs, donations, and retirement payments.

7. Check with the IRS

The IRS has Publication 15 (Circular E), which shows you how much should be withheld from a paycheck. It's a pretty large guide, so start on page 43.

Also read: Are Home Improvements Tax Deductible?

8. Calculate your percentages

Starting on page 43, you'll get to calculate your withholding percentage. Take your allowances, and multiply it by the amount listed in Table 5 based on how often you get paid. You'll then subtract that amount from your pay.
Finally, use the table on pages 45 and 46 to find your filing status and how often you get paid. That will tell you the amount of income tax that will be withheld.

9. Find payroll withholding

OK, now that you're done calculating federal tax withholdings, it's time to find your payroll withholdings.

10. Calculate Medicare Taxes & Social Security

Calculating social security tax is simple. Just take your gross pay and multiply by 6.2%. For Medicare tax, multiply your gross pay by 1.45%.

11. Check to see if you have additional Medicare Taxes

Now, if you make a certain amount of money, you'll need to pay additional Medicare taxes. If you're single earning more than $125,000 a year or married making more than $250,000, you'll need to pay an additional 0.9% in Medicare taxes.

12. Calculating your federal tax withholdings by adding your payroll and income taxes

In this final step, all you have to do is add your payroll withholdings (Steps 9-11) with the amount you found in Step 7. There's your total Federal withholding tax.

Make Calculating Federal Tax Withholdings Easier

You're now empowered to figure out tax withholdings on your own. You can always take a shortcut and hire a tax professional to calculate federal withholdings for you. That costs a lot of money and time.
There's an even easier solution for calculating federal tax withholdings. You can use ThePayStubs to create your own paystubs. That automatically calculates all withholdings for you. Try it out now!

Frequently Asked Questions

Yes, the IRS provides a Tax Withholding Estimator and the Publication 15-T, which includes withholding tables and worksheets to assist employers in calculating withholdings accurately.

Yes, an employee's withholding amount can change if they submit a new Form W-4 to their employer, which may be necessary if their personal or financial situation changes.

Withholding allowances reduce the amount of taxable income, which in turn reduces the amount of federal tax withheld from an employee's paycheck.

To begin, you will need the employee's Form W-4, which provides their filing status, number of allowances, and any additional withholding amounts requested.

The 12 steps are a method used to determine the amount of money withheld from an employee's paycheck for federal income tax purposes.

Factors affecting the amount of federal tax withheld include the employee's filing status, income, number of allowances claimed, and any additional withholdings requested on their Form W-4.

Employees can request additional withholdings on their Form W-4 by specifying a dollar amount under the "Extra withholding" section.

Employers must deposit the withheld federal taxes with the IRS, typically on a monthly or semi-weekly basis, and file quarterly or annual employment tax returns.

Employers should calculate federal tax withholdings each pay period to ensure the correct amount is withheld from employees' paychecks.

Accurate calculations ensure that employees do not overpay or underpay their taxes throughout the year, avoiding potential penalties and interest charges.
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The 12 Steps Of Calculating Federal Tax Withholdings
James Wilson

After graduating from McCombs School of Business in Texas, James joined ThePayStubs as a CPA to make sure the numbers we provide our clients are correct. Read More

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