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Income Tax Withholding
Federal Income Tax Withholding
Employers must withhold federal income tax from each wage payment made to their employees. The amount to withhold depends on the employee's marital status and the number of allowances and exemptions claimed on the employee's Form W-4.
The IRS allows employers to use different methods for figuring FITW. As a rule of thumb, employers should use the method that best suits their operational needs.
To calculate withholding tax correctly, the employer must know the frequency with which wages are paid. The pay frequency or "payroll period" is a period of service for which the employer ordinarily pays wages biweekly, semimonthly, monthly, quarterly, semiannual, annual, daily, or miscellaneous.
There are two basic methods approved by the IRS - the wage bracket method and the percentage method. These methods are based on two elements: the pay period and the number of allowances the employees claim on the Form W-4.
Both methods have separate tables for weekly, biweekly, semimonthly, monthly, and miscellaneous or daily payroll periods. In addition, the percentage method provides for quarterly, semiannual, or annual payroll periods. Both have two separate schedules for each pay period - one for single persons and unmarried heads of household, and a second for married persons and surviving spouses. The wage bracket tables indicate the exact amount to be withheld, while the percentage tables show an amount plus a percentage of the excess over a certain figure.