Let’s discuss how to calculate the withholding tax. Follow the steps below to calculate the necessary federal withholding income tax rate:
1. Collect necessary documents
Gathering all relevant documents from your employees is the first step in correctly calculating withholding tax. To calculate withholding tax, you’ll need your employee’s W-4 form, gross pay for the pay period, and an income withholding tax table.
2. Get your employee’s W-4
It’s important your employee fills out their W-4 correctly for your withholding tax calculations. Your employee will have to fill out their filing status, number of dependents, and additional income information. You will need to reference this form to calculate withholding tax.
3. Review your payroll records
To calculate employee withholding tax, you will need to review important information from your payroll.
As an employer, you will need to look at these payroll records:
- Payroll period information
- Frequency of the pay periods
- Gross pay amount for the pay period
An employer is also responsible for payroll withholding, which is money taken out of an employee’s gross wages. This money taken is then used to pay the employee’s portion of the payroll taxes to the federal government.
There are also payroll deductions—money taken out of an employee’s paycheck to pay for costs like employee benefits. Payroll deductions can either be mandatory, which employers are required to pay, or voluntary, which employees can pay.
Understanding payroll can be overwhelming, which is why it is useful to use a payroll accounting service to keep track of payroll costs and employee compensation.
