How to Calculate a Salary's Federal Income Tax Withholding

By Grace Ferguson
Include the employee's annual federal income tax withholding on her W-2 form.
tax forms image by Chad McDermott from

Unlike hourly employees who are paid according to hours worked, salaried employees receive a set pay each pay period. However, both pay groups are required by law to pay federal income tax unless they qualify for exempt status. In this case, the employer does not withhold federal income tax. Federal income tax calculation is quite straightforward for salaried employees; the withholding amount stays constant, unless the employee has a change in her deductions or pay.

Check Lines 3 and 5, respectively, of the employee's W-4 form for his filing status and allowances. Each allowance the employee claims gives him a certain sum, which lowers his taxable income. Consult IRS Circular E to obtain the federal income tax withholding tables. The Circular E helps you to determine the tax withholding amount based on the employee's salary, pay period, allowances and filing status.

Use the Circular E's wage bracket method if the salary is within the wage bracket income limit and if the employee claims less than 10 allowances. Suppose she claims single with five allowances and her weekly salary is $800. According to the 2010 Circular E, her federal income tax withholding is $46.

Apply the percentage method in any situation. This method is particularly useful if the employee claims more than 10 allowances and earns more than the wage bracket's income limit.

Suppose the employee claims married one and earns $1,000 weekly. The IRS gives $70.19 for each weekly withholding -- see IRS Circular E's percentage method Table 5.

Calculation: $1,000 - $70.19 = $929.81 -- taxable wages.

The IRS requires you to withhold taxes based on a certain excess amount of the taxable wages. You must consult the Circular E's Tables for Percentage Method of Withholding for the calculation procedure.

Calculation for a weekly payroll and married person: $929.81 - $471 = $458.81 (Excess over $471) + 15 percent = $68.82 + $20.70 = $89.52, weekly federal income tax withholding.

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