Each time you get paid, your employer takes federal income tax out of your paycheck. Sounds simple, but taxes are rarely ever that. Since they affect your finances, knowing how much will come out of your paychecks helps you to budget your income and expenses. Your federal income tax rate depends on the Internal Revenue Service withholding tax tables, which are typically released by the start of each year.
Each year, the IRS sends employers it has on file an updated copy of its Circular E, the Employer’s Tax Guide, which has the new withholding tax tables for the year. As an employee, you can access the publication online to see if your employer is withholding the right amount of taxes from your paychecks, or to see how much should come out. The Circular E shows the federal income tax table that goes with your filing status, number of allowances, pay period and taxable wages. It also includes payroll tax changes that Congress made.
Income Tax Rate
From year to year, your tax rate for federal income tax may stay the same, or it may change. This depends on a number of factors, such as whether Congress changed the income tax rates, and your wages and filing status. For instance, in 2012, you paid 10, 15, 25, 28, 33 or 35 percent of a certain amount of your wages, and, possibly a flat amount, for federal income tax. In 2013, the top rate increased from 35 percent to 39.6 percent (effective immediately) for single filers making over $400,000, married joint filers making over $450,000, and head-of-household filers making over $425,000.
Payroll Tax Rates
Strictly speaking, withholding tax tables refer to the actual tax chart your employer uses to figure your income tax withholding. Withholding tax rates, however, extends to other types of payroll taxes like Medicare and Social Security taxes. The new Circular E also has these rates, which may stay the same as the previous year, or change. For instance, starting Jan. 1, 2013, married joint filers with combined income of more than $250,000 must pay an additional Medicare tax -- outside of the regular 1.45 percent for that year -- of 0.9 percent.
You can also find tax rates for supplemental wages such as bonuses, commissions and severance pay in the new Circular E. In 2012, taxpayers paid 25 percent in federal income tax for supplemental wages of $1 million or less. As of Jan. 1, 2013, that rate changed to 28 percent. For supplemental wages over $1 million, the rate on the excess amount changed from 35 percent in 2012 to 39.6 percent in 2013.
If the state uses tax tables for state income tax withholding purposes, you may get the new tax tables and your tax rate from the state revenue agency.
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.