Step-By-Step: How To Calculate Tax Withholdings
For the most part, most businesses and companies do an accurate job of calculating payroll tax withholdings from your salary or wages. The company that you work for may use a computer-based program application to calculate your payroll taxes or they might do it the old-fashioned way and use tables that are listed in Internal Revenue Service bulletins to calculate how much to withhold from your paycheck. However, you should know how to do this as well to make sure that taxes are being accurately withheld have from your pay, and to make sure that you don't pay too little in withholding taxes – so you won’t have to make a tax payment when it's time to file your income tax return.
Calculate Your Gross Pay
If you receive a set salary amount every pay period, calculating your gross pay is very easy. For instance, if you get paid a certain amount every month, then you already know how much your gross pay is - it is simply the amount of your agreed monthly salary or wage. On the other hand, if you are paid by the hour, you will need to calculate your gross income. To do this, simply multiply the number of hours you have worked times your base hourly pay rate. This is the amount of your gross pay amount or the amount of your taxable income.
Calculate Your Withholding Rate
First, you should visit the Internal Revenue Service (IRS) web site and download IRS Publication 15-T. This is the publication that employers use to calculate federal income tax withholding rates, and is the same publication you will need to use. Toward the back of the
publication, there are tables that list the amount to be deducted from your salary, depending upon your number of W-4 deductions and your filing status. You will need to choose from: single, head of household, married filing jointly, and married filing separately.
Once you have found the appropriate table in the IRS Publication 15-T booklet, simply find the withholding amount in the chart that corresponds with the amount of your gross pay and a number of deductions on your form W-4. This is the amount of federal income tax that will be withheld from your paycheck.
Calculating Social Security Taxes
In addition to your federal withholding tax, your employer will also deduct your Social Security contribution as well. In order to calculate how much money should be deducted from your pay for Social Security, simply multiply your gross pay times 6.2%. This is the amount that your employer should deduct for Social Security.
Your employer is also required by federal law to deduct Medicare contributions from your salary as well. You can calculate how much Medicare should be deducted from your salary by multiplying your gross pay amount times 1.45%. This is the amount you should notice being deducted from your paycheck for Medicare.
Once your employer has calculated all of the above amounts, they will total them and deduct the entire amount from your salary or wages. These are federal withholding amounts, and you may live in a state that requires state withholding taxes as well. If you live in a state that withholds income tax, you should visit your State's Department of Revenue website to find more information about how to calculate those figures.Source: m.finweb.com