The process of calculating federal tax withholdings can be frustrating. This is because it is a complex process to figure the IRS tax code. This is an increasingly growing problem because f the rise in the number of people who are underpaying taxes. This guide provides you with the necessary steps to follow when calculating federal tax withholdings.
You need to begin by using the IRS withholding calculator. This will help you know if a lot is being withheld. However, regardless, you need to get a new W-4 form. Find out your current withholding from the last 1099 or W-2 form. Next you need to identify your gross income for the entire years. You have to know your filing status. It will help you in determining your federal tax withholding rate. The status can be either single, married, head of household, qualifying widow or married filing separately.
Also, you need to know your allowances. This is vital when filling the W-4 form. It will help you in knowing the amount that needs to be withheld from your paycheck. If you take more allowances, the less the amount that will be withheld. Zero allowance indicates that more money is withheld or there is a larger refund. The next step would be to claim your deductions. This is in case the deductions are more than $6300. You need to deduct expenses like donations, retirement payments, and health care costs. It is essential to check with IRS. The IRS has circular E that indicates what amount is necessary to withheld from paycheck.
It is important you calculate the percentages. This information can be got from page 43 of the IRS publication. It will help you in calculating the withholding percentage. You just have to know your allowances and then multiply it by the figure that is listed in table 5. This will be determined by how you get paid. Then subtract the amount out of your pay. Afterwards, use the table ton page 45 and 46 to determine the frequency you get pad and the filing status. This will assist you to knowing the income tax withheld.
After you are through with calculating the federal tax withholdings, you need now to find your payroll withholdings. Calculate the social security tax. The process is a simple one. You need to multiply your gross pay by 6.2%. However, you will multiply the gross pay by 1.45% for Medicare tax. Check for any additional Medicare taxes.If you earn a specific amount, you will be needed to pay additional Medicare taxes. If you are a single earner who get more than $125,000 yearly or married and earn more than $250,000 each year, you will be required to pay 0.9% in Medicare taxes.