How is Federal Withholding Calculated?

Have you ever checked that you are withholding enough tax from employee paycheck?

Are you sure you are not withholding too much?

When an employee sees the W-2 form, you would find a line of employees standing at your door wanting to change the amount of withholding from their paychecks for the federal income taxes. I think this is a good time for the employees to adjust their withholding for 2019 by completing a new Form W-4. This mean, you also have to need the withholding calculating. First of all, I would like to give you a review on How to use w-4 forms.

See the withholding calculation process below and you will be able to determine if your withholding calculations match the correct adjustments according to the employee requests. You will have to include both income taxes and FICA taxes(Social Security and Medicare)

Federal Income Tax Withholding and Form W-4

If you are an employer, keep in mind that you can only calculate withholding for federal income taxes that is based on the information that is given by employees. It is necessary for each of the employees to complete a hire. The form includes all the mandatory information such as employee's marital status, the total number of allowances that need to be considered, and any additional amount that an employee wants to withhold from each of his paychecks.

An employee can change the information on their W-4 form with each pay period, and there is no such limitation, the form can be changed for an unlimited number of times.

What You Will Need for These Calculations

As I told earlier, you will need the employee's Form W-4, which will be completed by the employee. You will also need the following information in order to do the calculations

  • Gross Pay of each employee for the pay period.
  • All the income tax withholding tables for the current year from IRS Publication 15-A.
  • FICA tax withholding percentages of the current year.
  • The maximum Social Security Withholding amount of the current year.

How to Calculate the Withholding Amount

The amount that can be withheld from an employee's paycheck depends upon the following.

  • The period of the Payroll, this period can be weekly, bi-monthly, semi-monthly or monthly. It is the frequency with which you pay your employees.
  • The marital status of the employee(Whether the employee is single or married), from the W-4 form.
  • The number of total allowances claimed by the employee.
  • The amount of Gross pays for the period.
  • Any additional amounts that the employee requests to be withheld.

Withholding allowances are used by the employee to give additional information about his income, because it may affect his/her taxable income. All the additional allowances are included and the summed up on a Withholding Allowances Worksheet. The allowances are listed on items A through the item G of this worksheet and then the total allowances are written on the W-4 from on line 5. The employee does not need to show this worksheet to the employer, the employee can keep it with him.

How the Calculation Is Done?

If you are facing trouble calculating the amount of withholding, then follow the section below and you will find it pretty much easy to determine the withholding amount.

A worksheet is used for the calculation in the IRS Publication 15-A, which is the employer's Supplemental Tax Guide. Make sure that you are using the correct guide and year. For your information, the correct guide starts from Page 32 of 2018.

There are two methods that can be used for calculation:

The Wage Bracket Method:

In this method, you have to find the range in the employee's wages falls under. Then use the allowances that are being claimed by the employee. Find the correct amount from the W-4.

The Percentage Method:

This method is quite complex and difficult to implement. This method involves finding the amount of one's withholding allowance, that is base upon the employee's payroll period. Then you have to multiply these number of allowance that is claimed by the employee and subtract them from the employee's wages. And in the end, find the range which will be correct for that number and then simply calculate the tax amount.

Below is the step by step  wage bracket method:


First of all, you have to find the table for the payroll period that is currently being used by the company. It may be weekly, bi-weekly or monthly.


Now check if your employee is married or not, by going to the marital status column.


Then look down in the rows in the "single" section for the number of allowances. Let's say it's 1.


Then check this row for the number of gross wages; the gross wages amount will be in a category of wages "over" one number, "but not over" another. Let's say bi-weekly wages are $603, which is over $598.77 but not over $1690.77.


And finally just follow the category lines that are across the correct number of withholding allowances. There are just two more calculations to perform and you are done.

  • Subtract the amount that is noted in Column C from the Gross wages. In this case, the amount subtracted would be $361.44, so the remaining would be $237.33.
  • Now multiply the result from your Column C by the Percentage in Column D, which is 15 Percent in this case.
  • Now you have the withholding amount which is $35.60.

If there is an additional amount of withholding that the employee has requested, this amount is added to the withholding amount to get the total withholding amount.