It can turn out to be a nightmare to calculate federal tax withholdings. This is because it is a complex process to figure the IRS tax code. This is a growing problem due to the rise of many people who are underpaying taxes. This guide provides you with the necessary steps to follow when calculating federal tax withholdings.
The first thing you need to do is use 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. You have to obtain your recent withholding from the previous 1099 or W-2 form. The next step would be to identify the gross income for the year. It is advisable 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. It is essential when it comes to 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 is an indication that the amount that is withheld is more or you will get a larger refund. The next step would be to claim your deductions. This is if you get deductions that are $6,300 or more. You have to deduct expenses such as retirement payments, donations and healthcare costs. It is advisable that you check with IRS. The IRS has circular E that indicates what amount is necessary to withheld from paycheck.
It is essential to calculate your percentages. You will get this information on IRS publication page 43. It will help in calculating withholding percentage. You just have to know your allowances and then multiply it by the figure that is listed in table 5. You will determine this by how often you get paid. Then subtract the amount out of your pay. Then you can use the table provided in page 45 and 46 to determine your filing status and the frequency you get paid. This will determine the income tax that is withheld.
After you are through with calculating the federal tax withholdings, you need now to find your payroll withholdings. Calcuvate your social security tax. It is not a complicated process. You just have to take your gross pay and have it multiplied by 6.2%. However, for Medicare tax, you multiply the gross pay by 1.45%. Confirm if there are any additional Medicare taxes.If you make a specific amount, you will be required to make payment for 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.