How is federal income tax withholding calculated using the percentage method?
When using the percentage method to determine federal income tax withholding the employer must perform the following steps: • Determine the employee’s wages subject to federal income tax withholding (gross wages less any pre-tax deductions) • Determine the payroll frequency and the allowance amount per IRS Publication 15 Table 5 page 35 • Determine the total allowance amount by multiplying the number of allowances claimed by the employee on Form W-4 by the allowance amount from Table 5 • Subtract the total allowance amount from total wages • Using the tables provided by the IRS on pages 37-38 of Publication 15 to determine the appropriate federal income tax withholding • Add any additional withholding requested by the employer on Form W-4
