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 problem that keeps growing because the number of people who are underpaying taxes is increasing. This guide provides you with the necessary steps to follow when calculating federal tax withholdings.
Start by using the IRS withholding calculator. This will assist you in knowing the lot that is withheld. 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 is to determine the gross income for a year. It is advisable to know your filing status. This is because it will help in determining the federal tax withholding rate. In most cases the status is single, married or head of household.
Also, know your allowances. This is because it will help you when filling the W-4 form. It will help you know what amount is withheld from the 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 would be 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 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 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 table ton page 45 and 46 to determine the frequency you get pad and the filing status. This will help you know the income tax withheld.
After completing your federal tax withholdings, you have to know your payroll withholdings. Calculate the social security tax. This is a simple process. You just have to take your gross pay and have it multiplied by 6.2%. But for Medicare tax, you multiply your 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. Single earners who get more than $125,000 yearly or are married and get more $250,000, you need to pay 0.9% in Medicare taxes.