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How to Determine Tax Withholding

how to determine federal withholding tax

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Tax withholding is the practice of employers deducting income taxes from your paycheck and forwarding the money to the government as an advance payment on your estimated tax bill at the end of the year. The amount withheld from your paycheck depends on several factors such as how much you earn, your filing status and how many exemptions you claimed on your W-4 form. All employees must fill out a W-4 form and the number of exemptions you claim on this form determines how much money is withheld from each paycheck.

Things You'll Need

Tax withholding tables


Determine how much you earn each pay period.

Determine how many pay periods you will have during the year. For example, if you are paid biweekly, you will have 26 pay periods; if you are paid monthly, you will have 12.

Multiple the number of exemptions on your W-4 form by

$3,650. When calculating tax withholding for both the 2009 and 2010 tax years, each exemption you claim reduces your annual income subject to tax withholding (taxable income) by $3,650. Thus, if you claimed two exemptions on your W-4, your taxable income would be reduced by $7,300.

Divide the total amount of your exemptions (from Step 3) by the number of pay periods per year (from Step 2). Subtract that amount from your gross earnings each pay period (from Step 1). The result is your taxable income.

Calculate how much tax should be withheld from each paycheck using the federal withholding tables to ascertain how much tax you'll actually owe in each pay period. For example, if you are single, you are paid biweekly and your income after exemptions is $893, you should have $132.50 withheld. Compare this amount with the federal income tax your employer is withholding to make sure that the appropriate amount is being withheld.

Category: Taxes

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