How is Federal Withholding Calculated?

We all know the exciting feeling of receiving our yearly tax refunds. That little, or sometimes large, check from The Internal Revenue Service (IRS) adds a little extra spending cash to our pockets. While this can be a welcoming site, it is important to remember that you are simply receiving the money back you earned in the previous year.

Federal withholding, also known as payroll withholding tax, is a tax on income that is withheld from your wages and sent directly to the IRS, which acts like a credit against your tax liability that you are required to pay that year. This revenue generated by the IRS goes into funding the services we have all become accustomed to, like Social Security, Medicare, and unemployment compensation.

You can’t avoid withholding tax, but you have the ability to control the denomination that is withheld from each paycheck. It is in the best interest of the individual to accurately provide data on withholding tax through the Form W-4 (Employee’s Withholding Allowance Certificate) to the best of their ability to ensure they’re not subject to penalties and interest charges.

Now we know what withholding tax is and why we have it, but how is it calculated?

This question can be complicated, as the result is dependent on a couple of varying factors. The employer determines the amount of withholding based upon the employee's information provided through the Form W-4. Factors that make up the calculation for withholding tax include

• filing status
• number of exemptions
• amount of semi-monthly gross earnings

Calculate a paycheck's federal withholding

Use our free calculators to input your income info and get results of your federal and state income taxes: Salary Employee Calculator or Hourly Employee Calculator. To learn how to calculate federal taxes by hand with examples, see this quick guide: Calculate Federal Income Taxes by Hand.

Why is my federal withholding $0?

Usually, this tax equals $0 if the wages are not high enough. Wages need to be higher than the standard deduction.