How to Calculate Tax Withholding on the W 4 Form

By Grace Ferguson
The IRS regulates federal payroll tax laws.
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The Internal Revenue Service, IRS, requires employers to give newly hired employees a W-4 form to complete. The form is instrumental in figuring the amount of federal income tax to withhold from employees' wages. The IRS allows the employee to claim allowances on the W-4, which significantly influences the federal income tax withholding amount. Each employee's situation is different, so employers must use the respective W-4 to calculate the tax.

Obtain the employee's filing status from line three of the W-4 and her total allowances from line five. The total allowances claimed on line five should mirror the amount between lines A though G of the personal allowances section of the W-4.

Check IRS Circular E for the appropriate tax year for the amount allowed per allowance based on the employee's pay period. For 2010, the amount per allowance for a daily payroll is $14.04. Therefore, if the employee claims one allowance for a weekly payroll, the amount per allowance is $70.19 ($14.04 x 5 days).

Subtract the total allowances amount from the employee's gross pay. The result is the employee's pay that is subject to taxation. Consult the percentage method table relevant to the employee's pay period and filing status to figure the withholding amount.

Do not withhold federal income tax from the employee's pay if she claims exempt on line seven of the W-4.

Check line six of the W-4 to see if the employee wants additional tax withheld from each paycheck. If so, add the extra amount to the total withholding obtained in Step 3.

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