How Do You Calculate Federal Tax Withholding?
• Determine the employee’s gross pay from their employment agreement or time sheet. • This figure would include tips, commission and overtime, if applicable. Taxes will be determined by the frequency of the pay periods, such as weekly, bi-weekly, semi-monthly and monthly. • Deduct items that are tax exempt, such as retirement or savings plans, before calculating federal income tax. • Check employee’s W-4 form for filing status and withholding allowances. • For example, married and 3 allowances. If the form is not available, you should assume as single and 0 allowances. A worksheet is included on the back of the form for employees to calculate their allowances. Determine withholding amount for Federal Income Tax. • Refer to the IRS Publication 15 (Circular E)and choose either the Percentage Method or the Wage Bracket Method and use the appropriate chart. • Use gross amount of employee’s pay to calculate Social Security taxes. • The Social Security tax has changed: for 2011, the amount i
