Use this tool to estimate the federal income tax you want your employer to withhold from your paycheck. This is
tax withholding. See how your withholding affects your refund, take-home pay or tax due. Use this tool to: Results are as accurate as the information you enter. Have this ready: Your information isn't saved. Learn more about Security. Estimator Frequently Asked Questions More on Tax Withholding
W-4 Forms
After You Use the EstimatorUse your estimate to change your tax withholding amount on Form W-4. Or keep the same amount. To change your tax withholding amount:
To keep your same tax withholding amount:
When to Check Your WithholdingCheck your tax withholding every year, especially: When you have a major life change
If you changed your tax withholding mid-year
If you have more questions about your withholding, ask your employer or tax advisor. Why Check Your WithholdingThere are several reasons to check your withholding:
SecurityThe Tax Withholding Estimator doesn't ask for personal information such as your name, social security number, address or bank account numbers. We don't save or record the information you enter in the estimator. For details on how to protect
yourself from scams, see Tax Scams/Consumer Alerts. Page Last Reviewed or Updated: 31-Oct-2022 Are you considering doing your own payroll processing? Calculating withholding and deductions for employee paychecks isn't difficult if you follow the steps detailed here. Your goal in this process is to get from the gross pay amount (gross pay is the actual amount you owe the employee) to net pay (the amount of the employee's paycheck). After you have calculated gross pay for the pay period, you must then deduct or withhold amounts for federal income tax withholding, FICA (Social Security/Medicare) tax, state and local income tax, and other deductions. Key Takeaways
Step One: Get a W-4 Form From Each EmployeeThe Internal Revenue Service (IRS) requires that all workers in the U.S. sign IRS Form W-4 at hire. This form includes important information you will need to pay the employee and to make sure withholding and deductions are correctly calculated on the employee's pay. In addition to the employee's name and address, marital status, and filing status, you will need to get other information from the W-4 to do the withholding calculations for federal income tax. Step Two: Calculate Gross PayEmployee paychecks start out as gross pay. Gross pay is the total amount of pay before any deductions or withholding. For the purpose of determining income tax and FICA tax (for Social Security and Medicare), use all wages, salaries, and tips. How To Determine Gross PayFor salaried employees, start with the person's annual salary divided by the number of pay periods. For hourly employees, it's the number of hours worked times the rate (including overtime). If you are not sure how to pay employees, read this article on the difference between salaried and hourly employees. Here are examples of how gross pay for one payroll period is calculated for both salaried and hourly employees if no overtime is included for that pay period: Let's say your employee makes an annual salary of $30,000. This salary is divided by the number of pay periods in the year to get the gross pay for one pay period. If you pay salaried employees twice a month, there are 24 pay periods in the year, and the gross pay for one pay period is $1,250 ($30,000 divided by 24). An hourly employee is paid at an hourly rate for the pay period. If an employee's hourly rate is $12 and they worked 38 hours in the pay period, the employee's gross pay for that paycheck is $456.00 ($12 x 38). Step Three: Calculate OvertimeAll hourly employees are entitled to overtime if they work over 40 hours in a week. Some salaried employees are exempt from overtime, depending on their pay level. Lower-paid salaried employees must receive overtime if their salary is equal to or less than $684 a week ($35,568 annually), even if they are classified as exempt. You can pay more than the required overtime rate, but here we'll use the required amount. Some states also have overtime laws that require that overtime is to be paid at higher rates. Check your state labor department for details. Here's an example of how overtime is calculated: Sandy works 43 hours in one week. She is entitled to overtime for 3 hours at 1.5 times her hourly rate. If her hourly rate is $12, she receives overtime at the rate of $18 for 3 hours, totaling $54 of overtime. This overtime of $54 is added to her regular hourly pay of $480 (40 hours x $12), for a total of $534. The $534 is her gross pay for the pay period. Step Four: Adjust Gross Pay for Social Security WagesNow that you have gross wages, we can take a closer look. Before you calculate FICA withholding and income tax withholding, you must remove some types of payments to employees. The types of payments not included from Social Security wages may be different from the types of pay excluded from federal income tax. For example, if you hire your child (under 18) to work in your business, you must take out the amount of their pay when you calculate Social Security withholding but don't take it out when calculating federal income tax withholding. Here's another example: Your contributions to a tax-deferred retirement plan (like a 401(k) plan should not be included in calculations for both federal income tax or Social Security tax. NoteIRS Publication 15 (Circular E) has a complete list of payments to employees and whether they are included in Social Security wages or subject to federal income tax withholding. Step Five: Calculate Federal Income Tax (FIT) Withholding AmountTo calculate federal income tax withholding you will need:
The 2022 income tax brackets (to be filed in 2023) are as follows:
Step Six: Calculate Social Security and Medicare DeductionsYou must withhold FICA taxes (Social Security and Medicare) from employee paychecks. NoteBe sure you are using the correct amount of gross pay for this calculation. This article on Social Security wages explains what wages to take out for this calculation. The calculation for FICA withholding is fairly straightforward.
Withhold half of the total 15.3% (7.65% = 6.2% for Social Security plus 1.45% for Medicare) from the employee's paycheck. The other half of FICA taxes is owed by you, the employer. For a hypothetical employee, with $1,500 in weekly pay, the calculation is $1,500 x 7.65% (.0765) for a total of $114.75. Be careful not to deduct too much Social Security tax from high-income employees since Social Security is capped each year, with the maximum amount being set by the Social Security Administration. You will also need to consider the additional Medicare tax deduction due by higher-income employees, which begins when the employee reaches $200,000 in earnings for the year. The additional tax is 0.9% of the gross pay based on the employee's W-4 status. No additional tax is due from the employer. Step Seven: Take State Income Tax DeductionsMost states impose income taxes on employee salaries and wages. You will have to do some research to determine the amounts of these deductions and how to send them to the appropriate state/local taxing authority. Your responsibilities as an employer for deducting, paying, and reporting these taxes are discussed in this article. Step Eight (Optional): Take Other DeductionsYou're not quite done yet with deductions. Here are some other possible deductions from employee pay you might need to calculate:
Remember, all deductions start with and are based on gross pay. An Example of an Employee Pay StubIn the case of the employee above, the weekly pay stub would look like this:
Don't Forget Employer Payroll TaxesYou must make deposits with the IRS of the taxes withheld from employees' pay for federal income taxes, FICA taxes, and the amounts you owe as an employer. Specifically, after each payroll, you must:
Depending on the size of your payroll, you must make deposits monthly or semi-weekly. You must also file a quarterly report on Form 941 showing the amounts you owe and how much you have paid. NoteIf you have many employees or don't have the staff to handle payroll processing, you might want to consider a payroll processing service to handle paychecks, payments to the IRS, and year-end reports on Form W-2. Frequently Asked Questions (FAQs)What percentage of my paycheck is withheld for federal taxes?Employers withhold 7.65% of your adjusted gross income for FICA taxes (6.2% for Social Security taxes and 1.45% for Medicare taxes) in addition to federal income tax. Depending on your income level, you fall into one of the following federal income tax brackets: 12%, 22%, 24%, 32%, 35%, and 37%. Why was no federal income tax withheld from my paycheck?If you don't see federal income tax being taken out of your paycheck, it is either because your employer considers you an independent contractor, meaning you will receive a 1099 and likely be required to pay quarterly estimated taxes or you claimed exemption from federal income taxes e.g. you do not expect to have a tax liability for the current year. |