How to Figure Federal Income Tax Withholding

File federal taxes on time to avoid unnecessary penalties.

File federal taxes on time to avoid unnecessary penalties.

Your employer figures out your federal income tax withholding when he determines your paycheck, but you have some influence over how much gets taken out. The W4 that you fill out when you first start your job -- which you are allowed to update if your circumstances change -- allows you to choose a larger or smaller withholding amounts. Regardless of the paycheck withholding you choose, you are liable when you file your annual tax return for the full amount of tax due for your income level and filing status.

Withholding Allowances

The withholding allowances offered on Form W4 provide the basis for your employer's calculations for paycheck tax withholdings. The more deductions you claim, the less is taken out in taxes. Withholding allowances roughly correspond to aspects of your personal situation that entitle you to tax deductions that lower the amount of tax you owe.

Multiple Jobs

When you work multiple jobs, your tax rate is usually higher because your total earnings are higher. A W4 form determines tax withholding for a specific job, but when you fill out your annual 1040 tax return, you'll be taxed on your combined income for all of your jobs. Tax rates increase relative to income levels. Choosing fewer withholding allowances helps ensure that you pay enough tax overall throughout the year and avoid unpleasant surprises when you file your return.

Seasonal Work

The tax tables or percentage rates your employer uses to calculate your tax withholding during each pay period assume that you earn roughly the same amount for each pay period throughout the year. However, seasonal work can lead to inaccurate tax withholdings because your earnings -- and withholdings --throughout the year are uneven. For example, if you earn $800 per week over the summer, your withholding will be based on the assumption that you earn $40,000 for the year even though you may work much less over the winter and only earn $30,000. Choosing extra withholding allowances on your W4 can adjust for this discrepancy.

Withholding Percentages

Your employer may choose to calculate federal income tax withholding using the percentage method rather than IRS tax tables. Percentages vary relative to your income level and number of withholding allowances entered on your W4, and they increase the more you earn. For example, someone who earns $500 per paycheck using a semi monthly pay cycle will pay no taxes on the first $94, and will pay 10 percent of earnings over $94 as of publication.

About the Author

Devra Gartenstein has owned and run a variety of food businesses for more than 20 years. She has published two cookbooks: "The Accidental Vegan" and "Local Bounty." Gartenstein holds Master of Arts degrees in philosophy and English literature.

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