Calculate Federal Tax Withholding

Calculating federal tax withholding — though it's something the majority of people have to do regularly, the process can be surprisingly frustrating. Luckily, with the right guidance, this yearly ritual doesn't have to be a source of stress: each tax has its own set of laws and regulations associated with it, which (though sometimes complicated) are clearly outlined by the IRS. Learn how to calculate your federal tax withholding today to save yourself time and energy for years to come.

Steps

Useful Resources

1. Use the IRS withholding calculator for a good estimate. There are many calculators online that can help you calculate about how much your federal withholding should be for the year. However, the most authoritative is probably the one offered by the IRS itself, available here (the link is about halfway down the page.) This calculator allows you to input your income for the year and receive a reasonably accurate estimate both of your total withholding and of your refund.
   • For the most accurate results, be sure to supply any tax credits, allowances, and deductions when prompted, though you can also ignore these for a quicker (and likely less accurate) result.
2. Check your W-2 or 1099 for withholding information. After the end of every tax year, your employers are legally required to send you tax documents that contain important information about your income for the year. These forms almost always tell how much of your income was withheld for federal taxes (and state taxes as well, when applicable.) If you don't have this form, talk to your employer's payroll department to get a copy.
   • Most employees will get a standard W-2 form from their employer. If you are an employee at multiple businesses, you should receive a W-2 from each.
   • On the other hand, employees that qualify as independent contractors will receive a 1099 form from every employer they had that paid them more than $600 during the year. 1099 forms are also used for miscellaneous types of income like retirement account payments, dividends from investments, and more.

Finding Your Yearly Federal Income Tax Withholding

1. Find your gross income for the year. Your federal taxes are based on the amount of money you earn or receive during the year. The more money you make, the more taxes you owe, and the greater your withholding will be. Usually, you can find your gross income by adding up the totals on the end-of-year documents like W-2s and 1099s you receive from your employer(s).
   • Note that tips, bonuses, commissions, and overtime pay are all taxable. In addition, many types of non-wage income, like retirement payments and even gambling income are taxable.
2. Determine your filing status. Your federal tax withholding can vary greatly depending on how your life and family situation. While withholding rates can vary from year to year, as a general, single people almost always have the biggest withholding and married people have significantly lower ones. Filing statuses include:
   • Single: Highest withholding.
   • Married filing jointly: Smaller withholding.
   • Married filing separately: Usually similar to single.
   • Head of household: For unmarried people who are responsible for more than 50% of the costs of maintaining a home for themselves and dependents. Smaller withholding than single, but not as small as married.
   • Qualifying widow(ers): Special case for individuals whose spouse has died and who meet certain conditions (click here for more information.) Usually similar to married.
3. Use a W-4 to find your allowances. Withholding exemptions called "allowances" dictate how much money is withheld from your income for tax purposes. As a general rule, the government takes a greater withholding from people who are single and have no children. This means, however, that these people usually get the biggest refunds at the end of the year. You can use an IRS form W-4 (available here) to determine how many allowances to claim.
   • If, for whatever reason, the form is not available, you should assume a filing status of single and 0 allowances. This will lead to the greatest withholding and the biggest refund at the end of the year.
4. Total and subtract your deductions. Certain types of expenses are deductible — that is, if you spend money on them during the year, your taxable income goes down. Deductible items include payments to retirement accounts, health savings plans, insurance premiums, childcare, some healthcare expenses, charitable donations, and more. Subtract your deductions from your taxable income before finding your withholding.
   • Expenses that are eligible for tax deductions can vary based on your living situation (single, married, etc.) and events that have recently occurred in your life. For a good resource on tax deductions, consult the eFile deduction guide.
   • Note that you should only claim deductions if they total more than $6,300 — otherwise, use the standard IRS deduction, which is for this amount.
5. Find your income withholding amount from your wage bracket. Now, you're ready to find your withholding amount. Follow carefully with the steps below to determine how much income will be withheld from your earnings.
   • Consult IRS Publication 15 (Circular E), available here. Turn to pages 47-66. Here, you will see tables that detail how much income should be withheld from your paycheck.
   • Pick the page that has the filing status and pay period at the top of the page that match you.
   • Find your income for the pay period on the left side of the table. The more frequent the pay period you're examining, the smaller your income will be.
   • Move through the table to the right until you're under the column labeled with the number of allowances you claimed. This is the income withheld each pay period.
6. Alternatively, use the percentage method. If you don't want to go through the process of finding your wage bracket or you make enough money that you can't find your bracket on the tables, use the percentage method instead. You can find information about this method on pages 43-46 of IRS Publication 15 (Circular E), available here. Follow the steps below to use this method:
   • Multiply the number of allowances you are claiming by the appropriate amount as specified by Table Five on page 43 based on the frequency of your pay period.
   • Subtract this from your pay.
   • Find the table on page 45 or 46 for your filing status and pay period.
   • Follow the instructions on the table, using your pay minus allowances to find your tax rate.
7. Use the provided example problems to your benefit. The two methods for finding your income tax withholding above are somewhat complex, so following along with an example problem (like the ones in Publication 15 itself) can help make them more manageable. See below for an example problem for each method:
   • Wage bracket example: If you are single, you make $50,000 per year, and you are paid every week, go to the Single Persons, weekly pay period page. There are 52 weeks in a year, so 50,000/52 = $961, your weekly pay. Scroll down to the 960-970 row on the next page. Looking to the right, see that at 0 deductions, you have $149 withheld.
   • Percentage example: Let's say that you are married, you are paid $2,000 every two weeks, and that you are claiming two allowances. Using Table Five on page 43, you should subtract 2 × 153.80 = $307.60 from your pay. 2,000 - 307.60 = $1,692.40. On page 45, you can use this number to determine your withholding. $1,692.40 after deductions puts you in the second row for tax purposes, which means that your income after $1,040 is taxed at 15%, plus you have to pay $70.90. This totals to:

     (0.15 × (1692.40 - 1040)) + 70.90

     (0.15 × (652.40)) + 70.90

     (97.86) + 70.90 = $168.76 withheld.

Finding Payroll Tax Withholding

1. Use your gross pay × 6.2% for Social Security taxes. Unfortunately, the tax you pay to the federal government isn't just an income tax. If you work and earn income, you will almost always have to pay additional taxes called payroll taxes. These taxes are used to pay for important social programs — namely, Social Security and Medicare. See below to learn how to calculate your Social Security taxes:
   • The Social Security tax rate for 2015 is 6.2% for the employee portion and 6.2% for the employer portion. In other words, if you work for someone else, you pay 6.2% of your income as Social Security taxes and your employer matches this amount. Use your gross pay (your pay before any taxes are taken out) for this calculation.
   • However, if you are self-employed, you must pay both the employer and the employee taxes, or 12.4%.
   • The maximum earnings subject to Social Security tax for 2015 are $118,500. If you make more, you don't have to pay Social Security on the income over this threshold.
2. Use your gross pay × 1.45% for Medicare taxes. The other main federal payroll tax is for Medicare. This, too, is a flat tax rate. See below to learn how to calculate this tax:
   • Medicare tax rate for 2015 is 1.45% for the employee portion and 1.45% for the employer portion. As with Social Security, use your gross pay (your pay before any taxes are taken out) for this calculation.
   • Once again, if you are self-employed, you pay both portions, or 2.9%.
   • There is no maximum earnings limit for Medicare tax.
3. Apply additional Medicare tax of 0.9% if you are a high earner. Wealthy individuals have to pay a small additional 0.9% tax on top of the normal Medicare tax. This tax applies only to income above a certain threshold — below this threshold, only the normal 1.45%/2.9% rate is applied. The threshold varies based on your filing status.
   • Additional Medicare tax begins at earnings of:
   • $250,000 for Married filing jointly
   • $200,000 for Single, Head of household, or Qualifying Widow(er)
   • $125,000 for Married filing separately
4. Add your payroll and income taxes to get your total withholding. Once you know your income tax withholding and your withholding for your payroll taxes, finding your total withholding is as simple as adding them together. Using an annual pay period for your tax calculations will give you your withholding for the year, while using your normal pay period will give you your withholding for each paycheck.
   • Example: Let's say that you are single, you make $4,000 per week ($208,000 per year), you work for someone else, and you are claiming zero allowances. You can find your withholding for the year with the following calculations:
   • Income tax (percentage method): Withhold $46,075.25 plus 33% of income over $191,600. 0.33 × (208000 - 191600) = $5,412. $46,075.25 + $5,412 = $51,487.25
   • Social Security: 6.2% of 118,500 of your earnings. 0.062 × 118500 = $7,347
   • Medicare: 1.45% of income, plus 0.9% of income over $200,000. 0.0145 × 208000 = $3,016. 0.009 × 8000 = $72. 3016 + 72 = $3,088
   • Total: $51,487.25 + $7,347 + $3,088 = $61,922.25

Tips

• Maintain accurate and up-to-date records. This can be done using a simple spreadsheet or through online or computerized systems. Employers should keep records of all employee hours and wages specified in the Fair Labor Standards Act for a minimum of two years.
• Consult a payroll or tax professional if you are unsure of laws and regulations.
• Use the withholding calculator available on the Internal Revenue Service website or other online sites. Be sure that they contain current tax changes.
• Update W-4 information annually.
• Obtain a basic understanding of Federal employee tax laws. Publications are available through the IRS.
• Familiarize yourself with the Fair Labor Standards Act (FLSA) which determines differences between types of employees, who should be paid overtime, and so forth.
• Keep all tax records in one place. Check the Internal Revenue website to determine the length of time that records should be kept for auditing reasons.

Sources and Citations

See also

• Determine Your Federal Tax Bracket
• Turn Someone in to the IRS
• Fill Out a US 1040EZ Tax Return
• Annualize
• Find a Federal Tax ID Number
• Fill Out a W‐4
• Account for Fixed Assets
• Calculate Tax on Bonus Payments
• Pay Less in Taxes
• Complete a W‐9 Tax Form

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• Calculate Payroll Taxes
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