IRS tax tables are used year round by employers to calculate how much to withhold from their employees’ paychecks. Some employers use a percentage method and others use the tax bracket method. Both are simple to use and explained in the IRS Publication 15, aka Circular E, Employer’s Tax Guide.
The Percentage Method
There’s a simple formula for the Percentage Method. Each withholding allowance is worth a certain dollar amount. The pay period is important.
This example is straight from the IRS website, from Circular E. On the first table, find the dollar amount for the pay period you use, and plug it into the second table, line 1.
|Payroll Period||One Withholding Allowance|
|Daily or miscellaneous (each day of the payroll period)||14.62|
|1.||Total wage payment||$600.00|
|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|
The Wage Bracket Method
The Wage Bracket method used the 2013 IRS Tax Tables. There are different tables for different types of pay periods (annual, bi-weekly, etc). Make sure you are using the correct tax table when you look up an employee’s salary, and make sure you look in the correct Marital Status column. You’ll also need to know the number of withholding allowances, too.