How to Calculate Tax Withholding on My Paycheck

Taxes are deducted from your gross pay.

Your employer is required by law to withhold payroll taxes from your paycheck. Your pay stub gives you the amount of taxes withheld from your paycheck but it does not explain how the calculations occurred. Computing taxes withheld can be confusing. Various types of taxes apply, such as federal income tax, state income tax (if applicable), and Medicare and Social Security (FICA) taxes. All are calculated differently.

Things You'll Need

• IRS Publication 15
• State tax withholding tables
• FICA rates

Instructions

1. Consult the IRS Publication 15 (Circular E) to figure federal income tax. In addition, check your Form W-4 for your filing status and number of allowances. Use the Circular E's wage bracket method if your wages are within the income limit or if you are claiming less than 10 allowances.

   For instance, say you earn $400 weekly, your filing status is single and you have two allowances; according to page 41 of the 2010 Circular E, your federal income tax would be $18.

   Use the percentage method if you have more than 10 allowances, if your wages exceed the wage bracket method limit or if you simply do not want to use the wage bracket method.

   Based on the above example, calculate using the percentage method: $400 - $70.19 (see page 37 of the 2010 Circular E) = $329.81. Then, go to page 39. Excess over $200 = $129.81 x 15 percent = $19.47 + $8.40 = $27.87 (your federal income tax).

2. Calculate state tax. If your state imposes state income tax, use your state tax form and your state withholding tax tables to determine the tax. State laws vary, therefore, your tax is dependent on what your state mandates.

   For instance, say your state is Georgia. Based on the withholding tax tables for Georgia and using the example in Step 1, your state income tax would be $12.36.

   See the Resources section for a list of state withholding tax tables, or contact your local Department of Labor agency.

3. Determine Medicare tax. The government sets the Medicare tax rate; for 2010, it was 1.45 percent of all gross wages. Say you earn $650 weekly, your weekly Medicare tax would be $9.43 ($650 x .0145).

4. Figure Social Security tax. The government also sets the Social Security rate; for 2010, it was 6.2 percent of gross compensation, up to the yearly maximum of $106,800. Based on the example in Step 3, your Social Security tax would be $40.30 ($650 x .062). Once you have reached the annual wage limit, your Social Security withholding should cease until the start of the next year.

Tips & Warnings

• Use the Circular E and the state tax withholding tables for the appropriate tax year.

References

• IRS: Publication 15
• State of Georgia Department of Revenue: Employer Tax Guide

Resources

• Read this Article in Spanish
• Withholding Tables
• DOL Services By Location