How to Calculate Federal Withholding Tax Using the Percentage Tables

Your employer can withhold your taxes using either the wage bracket or percentage method.
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If you claim up to 10 allowances on your Form W-4, your employer can use the Internal Revenue Service’s wage bracket tables to figure your federal income tax withholding. This method is straightforward and gives the exact tax based on your withholding conditions. If you claim more than 10 allowances, your employer can use the more complex percentage method. To know your withholding amount using the percentage tables, you must first figure your taxable wages.

Pretax Deductions

Your federal income tax withholding is based on your taxable wages, which is your pay after pretax deductions and W-4 allowances. If you have pretax deductions, such as Section 125 health insurance and 401(k) contributions, subtract your premiums from your gross pay. Skip this step if you don’t have any pretax deductions.

Allowance Value

The IRS gives you an amount for each allowance that you claim on Line 6 of your W-4. To arrive at the sum of your allowances, multiply the total number of allowances on your W-4 by the amount the IRS gives for each allowance. For instance, at the time of publication, each allowance for a biweekly pay period is worth $151.90. Assume that you claim two allowances and your biweekly wages after pretax deductions come to $1,000. Multiply $151.90 by two to arrive at your allowance sum of $303.80. Then subtract $303.80 from $1,000 to get your taxable wages of $696.20.

Percentage Table

After calculating your taxable wages, use the appropriate percentage table in IRS Publication 15 to figure your withholding amount. Apply the table that matches your filing status, pay period and wages after pretax deductions and allowances. Each table provides the calculation method for single individuals -- including people filing as head of household -- and married individuals. If you checked “Married, but withhold at higher single rate” on Line 6 of your W-4, use the percentage table for single people.

Calculation Example

As a married person subject to the married withholding rate, assume that your biweekly taxable wages equal $696.20. For 2014, your wages over $325 are taxed at 10 percent. To get your exact withholding, subtract $325 from $696.20, which comes to $371.20. Multiply $371.20 by 0.10 to arrive at your withholding amount of $37.12. If your taxable wages exceed a certain amount for the pay period, both a flat rate and a percentage amount apply to those excess wages. For instance, in 2014, a flat rate of $69.80 plus 15 percent are added to wages above $1,023 up to $3,163.

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