Uncle Sam requires employers to collect three taxes from your pay: Social Security, Medicare and federal income taxes. The Internal Revenue Service says payroll withholding means you pay some of your annual tax bill each payday and therefore won’t owe a lot of money at the end of the year. The amount of federal taxes you pay depends on how much you make and on the filing status and number of withholding allowances you put down on your W-4 form. Employers use formulas provided by the IRS to calculate tax withholding. You can do this yourself if you want and make sure the right amount of tax is taken out of your paycheck. By doing this, you can insure that you won't be paying the IRS more or less than you need to and won't have a large refund or big tax bill at tax filing time.
Figure your gross income. Gross income equals salary or wages plus items like tips and commissions. Your employer might use a term like gross wages, gross pay or total pay. Include pretax deductions like contributions to a 401(k). These amounts aren’t subject to federal income tax, but you have to pay Social Security and Medicare taxes on them. Don’t include reimbursements for business expenses; you don’t pay any taxes on these.
Calculate Social Security tax. This is a “flat tax” of 6.2 percent of gross income as of 2015. Multiply 6.2 percent times your gross pay. For example, if gross pay is $1,500, multiply $1,500 by .062 and you get $93. There is a cap on annual earnings subject to Social Security tax, which was $118,500 in 2015. If you have already made $118,500 for the year, your employer will not deduct any more Social Security tax, so you should not include any in your calculations.
Multiply gross income by 1.45 percent to calculate Medicare tax. When gross pay is $1,500, you have $1,500 by .0145, which equals $21.75. There’s no limit on Medicare, so calculate it no matter how much you make. However, if you earn over $200,000 in a year, the rate goes up to 2.35 percent for earnings in excess of $200,000.
Look on your W-4 form for your filing status, which is on line 4. You also need the number of withholding allowances, which appears on line 5.
Multiply the number of withholding allowances on your W-4 by the value of one allowance and subtract the result from gross income. The size of a withholding allowance is set by the IRS based on the length of your pay period. For instance. one weekly withholding allowance was equal to $76.90 in 2015. If you claim three allowances, subtract three times $76.90 or $230.70 from your weekly gross income. Also subtract pretax deductions such as money you put in a 401(k) plan. The result is the taxable income you use to figure federal income tax.
Look on the IRS withholding tax tables for the formula to calculate federal income tax that applies to your filing stats, pay period and amount of taxable income. Current tables are available on the IRS website. Suppose you are single and make $800 a week. Your federal income tax should be $99.10 plus 15 percent of the amount over $764. This works out to $108.10.
Add up the amount of Social Security tax from Step 2, Medicare tax from Step 3 and federal income tax from Step 6. The total is the amount of federal taxes on your pay for one pay period.
This article deals with federal taxes. The majority of state governments levy income taxes, as do some local governments. Each government sets its own rules for figuring income taxes and withholding. Check with the state or local department of revenue for instructions.
- IRS: Tax Withholding
- IRS: Notice 1036, 2015 Percentage Method Tables for Income Tax Withholding
- IRS: Form W-4 (2015)
- HalfPriceSoft.com: Federal Income Tax Tables 2015
- IRS. "FAQs on the 2020 Form W-4." Accessed Oct. 16, 2020.
- IRS. "Tax Withholding for Individuals." Accessed Oct. 16, 2020.
- IRS. "Topic No. 753 Form W-4—Employee's Withholding Allowance Certificate." Accessed Oct. 16, 2020.
- Social Security Administration. "Fact Sheet Social Security." Accessed Oct. 16, 2020.
- Social Security Administration. "Contribution And Benefit Base." Accessed Oct. 16, 2020.
- IRS. "Topic No. 608 Excess Social Security and RRTA Tax Withheld." Accessed Oct. 16, 2020.
- IRS. "Publication 531 (2019), Reporting Tip Income." Accessed Oct. 16, 2020.
- IRS. "Group-Term Life Insurance." Accessed Oct. 16, 2020.
- IRS. "Questions and Answers for the Additional Medicare Tax." Accessed Oct. 16, 2020.
- This article deals with federal taxes. The majority of state governments levy income taxes, as do some local governments. Each government sets its own rules for figuring income taxes and withholding. Check with the state or local department of revenue for instructions.
Based in Atlanta, Georgia, W D Adkins has been writing professionally since 2008. He writes about business, personal finance and careers. Adkins holds master's degrees in history and sociology from Georgia State University. He became a member of the Society of Professional Journalists in 2009.