It can turn out to be a nightmare to calculate federal tax withholdings. This is because it can be frustrating and complex to figure out the IRS tax code. This is a growing problem due to the rise of many people who are underpaying taxes. Below are steps that you can use to calculate federal tax withholdings.
You need to begin by using the IRS withholding calculator. This will help you in identifying the amount that is being withheld. You have to obtain a new W-4 form regardless. You need to know your current withholding from the last W-2 or 1099 form. The next step would be to identify the gross income for the year. It is wise to know your filing status. This will assist you in knowing your federal tax withholding rate. In most cases the status is single, married or head of household.
Also, 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. If you have zero allowance, the amount withheld will be more or a larger refund. The next step is to claim your deductions. This is if the deductions are $6300 or more. You should deduct expenses like healthcare costs, retirement payments, and donations. It is advisable that you check with IRS. The IRS has a Publication 15 that shows what amount is needed to be withheld from a paycheck.
It is essential to calculate your percentages. This information can be got from page 43 of the IRS publication. It will help you in calculating the withholding percentage. Take the allowances and multiply by the figure you find on table 5. This will be determined by how often you are paid. later you need to subtract that amount from the pay. Afterwards, use the tables provided on pages 45 and 46 to know your filing status and the frequency in which you get paid. This will determine the income tax that is withheld.
After completing the calculation of federal tax withholdings, you have to find the payroll withholdings. Calcuvate your 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. For single earner who get more than $125,000 in a year or if you are married and make more than $250, 000, you should pay 0.9% as Medicare taxes.