The amount that is taken out of a paycheck for taxes weekly depends on an employee's filing status as well as his projected annual income. Employers can either use the percentage method for figuring payroll withholding taxes or they can consult IRS tax tables, which list the amounts to take out for different filing statuses and earning amounts.
Each employee should fill out Form W-4 when she starts working for you and again if her filing status changes, such as if she gets married or has a child. On this form, she will provide information about her filing status, such as whether she is married or single, as well as the number of withholding allowances that she believes matches her tax situation. The greater the number of withholding allowances she claims, the less money you will take out of her paychecks.
Medicare and Social Security Taxes
All employees are subject to have Medicare and Social Security taxes taken out of their paychecks. Medicare tax withholding is 1.45 percent of gross wages as of 2011, and Social Security tax withholding was lowered from 6.2 percent to 4.2 percent of gross wages during 2011. Wages over $106,800 per employee per year are not subject to Social Security tax as of 2011, but all wages are subject to Medicare tax withholding. Employers must match their employees' Medicare tax withholding and must also make Social Security payments for their employees at the pre-2011 rate of 6.2 percent of each employee's gross wages.
Income Tax Withholding
The percentage of wages taken out for income tax withholding depends on the filing status that each employee indicates on his Form W-4. To use the percentage method for income tax withholding, calculate projected annual earnings based on the amount of this particular paycheck. For example, if a weekly paycheck is $500, then annual earnings will be $26,000. Subtract $3,700 from this amount for each withholding allowance the employee has claimed to calculate his annual taxable income. Consult IRS tax withholding percentage charts for the percentage deductions relevant to each employee's gross wages and filing status.
Filing Annual Taxes
Regardless of the amounts that you take out of each employee's paycheck during each payroll period, her actual tax liability ultimately depends on how much she has earned during the year at all of the jobs she has held, as well as the deductions she claims, such as mortgage interest. When she files her federal income tax return, she will reconcile the amounts that you and her other employers have withheld with the amount she actually owes in order to determine whether she still owes money or is entitled to a refund.