How to Calculate Payroll Taxes Using a Percentage

To calculate federal income tax using a percentage, you need the current withholding tables found in IRS Publication 15-T. The IRS updates these tables any time there is a change in tax rates, be certain you are using the latest version of the publication.

Even though you will be using a percentage to calculate the tax, the amount you withhold is still impacted by the employee's W-4 elections.

Things You'll Need

• IRS Publication 15-T
• Employee Form W-4

Instructions

1. Look up your payroll frequency in Publication 15-T, "Table 1: Percentage Method Amount for One Withholding Allowance" to find the value of one withholding allowance.

2. Multiply the value of one withholding allowance by the number of allowances the employee claims on Form W-4.

3. Subtract the result from the employee's wages to arrive at net taxable income.

4. Find the appropriate table for your payroll frequency in IRS Publication 15T's "Tables for Percentage Method of Withholding." There are tables for 8 different pay frequencies: weekly, biweekly, semimonthly, monthly, quarterly, semiannual, annual and daily/miscellaneous.

5. Follow the instructions in the table for the employee's W-4 marital status and the net taxable income amount you calculated in step 3 to determine the amount to withhold for federal income tax.

Tips & Warnings

• Withhold as single with zero allowances if the employee has not given you a W-4.

• Be sure you use the current version of Publication 15-T.

References

• IRS Publication 15
• IRS Publication 15-T

Resources

• Read this Article in Spanish
• Publication 15 (2009), (Circular E), Employer's Tax Guide