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Small Business Tax Help: How to Use the IRS Tax Tables to Figure Withholding

There is a simple formula for figuring out how much tax to withhold from your employees’ paychecks.  All you need is a few bits of information and you’re good to go.  Here’s what you need:

1. IRS Form W-4 from each employee
2. IRS Tax Tables for the current year
3. The simple formula below

Where Do I Find the IRS Tax Tables for the Current Year?

Each year the withholding amount will change, so you have to make sure you have current year’s numbers.  These are available from IRS Publication 15 on the IRS website.

You need IRS form W-4 because it will tell you how many allowances he or she is claiming.  The W-4 will also tell you the marital status of the employee, which comes into play in the formula.

How To Figure Withholding

And here’s the formula.  This is the actual example published in IRS Publication 15.  This is for a single person who is claiming 2 allowances.

The wage amount of \$600 per week comes from you, the employer…what are you paying that employee and how often?  That goes in line one.

Line 2: that comes from the IRS tax tables for the current year.  Each withholding allowance is worth \$73.08 for 2012.  Multiply the allowance amount by the number of allowances and you get the amount that is not subject to withholding.  Therefore, subtract it: \$600 – \$146.16 is \$453.84.

You will use that reduced amount of \$453.84 when you consult the IRS tax tables for withholding.  Look up that amount in the weekly section of the IRS tax tables.

1. Total wage payment……….. . \$600.00
2. One allowance ………….. . \$73.08
3. Allowances claimed on Form W-4 . . 2
4. Multiply line 2 by line 3……… . \$146.16
5 Amount subject to withholding
(subtract line 4 from line 1) …… . \$453.84
6. Tax to be withheld on \$453.84 from
Table 1—single person, page 36.. . \$ 53.53