How to Calculate the Income Tax Withheld From a Paycheck

The employer reports all income tax withholding on the employee's W-2.

The federal government requires employers to withhold federal income tax from employees' paychecks. Most state governments require state income tax withholding, and a few local and city governments require local and city income tax. The IRS enforces federal income tax laws, and the state, city or local revenue agency administrates the respective laws. Your paycheck shows your take-home pay, but it may not show how your employer arrived at the income tax withholding amounts. Knowing how to calculate the tax helps you to determine if you were accurately paid.

Instructions

1. Use your W-4 data and the IRS Circular E to figure federal income tax. The Circular E is available on the IRS website. Federal income tax is based on your filing status and allowance, as shown on Lines 3 and 5 of your W-4, and on the Circular E's federal withholding tax tables. Suppose you earn $500 weekly and claim single with three allowances. According to the 2010 Circular E, your federal income tax is $23 per week.

2. Calculate state income tax according to your state's policy. Most states require your employer to use the state withholding tax tables and the employee's withholding allowance certificate -- this process is similar to federal income tax withholding. But some states may have other withholding methods, such as Pennsylvania, which charges a flat tax instead of using tax tables. Suppose you work in Idaho, claim married with one allowance, and earn $3,200 monthly. According to Idaho's withholding tax tables, your state income tax withholding is $135 per month.

3. Compute city or local income tax. In most cases, these taxes do not apply. But a few cities, such as New York City and Ohio's local government, impose these taxes. The state revenue agency generally has the withholding method for city or local taxes on its website. For example, Ohio employers must use the employee's state income tax withholding allowance certificate and the income tax rate for the county in which the employee resides to determine school district income tax.

Tips & Warnings

• Use the IRS withholding calculator to determine if you are paying too little or too much federal income tax. The calculator shows you how to adjust your taxes so you pay the appropriate amount.

• Your employer is required to withhold Social Security tax at 6.2 percent of gross income, and Medicare tax at 1.45 percent from your paycheck.

• Deduct all your withholding taxes and voluntary benefits from your gross pay to arrive at your take-home pay.

References

• IRS: 2010 Circular E
• Social Security Administration: Social Security and Medicare Rates
• Idaho State Tax Commission: Guide to Idaho Income Tax Withholding
• Ohio Department of Taxation: Employer Withholding Taxes
• Ohio Department of Taxation: Expirations, New School Districts, Renewals and Rate Changes Effective 1/1/2010

Resources

• IRS: Withholding Calculator