How Do You Calculate Federal Withholding Tax?
• Estimate your adjusted gross income (AGI) for the year after pre-tax deductions. • Look at a recent pay stub and subtract pre-tax deductions, such as employer health insurance plans and retirement plans, from your gross wages for the pay period. • If you are paid monthly, multiply by 12 to get your annual income. If you are paid more frequently, do the necessary calculation. • Add anticipated commission or bonus, minus pre-tax deductions. • Add investment income, net gains from asset sales, net rental income, and taxable retirement income, if applicable. Use amounts from last year’s tax return to help you estimate these income amounts. • Subtract losses from asset sales and allowable deductions (as listed on page 1 of Form 1040) to arrive at your AGI. • Repeat the previous step for your spouse, if applicable, and add your spouse’s AGI to your AGI to determine your total income for the year. • Deduct either the allowable standard deduction (Form 1040-ES shows the amount based on your
