What is Federal Tax Withholding

What is Federal Tax Withholding (FITW)?

Federal Income tax withholdings (FITW) are the money that employers withhold from the employee's paycheck and pay directly to the IRS(Federal government). Employees' amounts for federal income taxes are withheld based on the IRS standards (Employee's wages and Information provided to the employers on Form w4).

Some of the federal income taxes that are withheld from the employee's paycheck are:

• Social Security tax
• Medicare tax and additional medicare tax(if applicable)
• Federal income tax

What is Form W4?

The IRS Form W4 (Employee's withholding certificate) is a tax document that is to be filled out when the employee begins a new job. On filing Form W4, employers can compute how much amount of tax to withhold from employee's paychecks and send it to IRS.

To fill out this form, understand the steps given in the Form W4.

Who pays withholding tax?

Employers are liable for paying the federal withholding tax. Some of the federal taxes like FICA(Social Security and Medicare taxes) are deducted from the employee's paycheck.

Who are all exempt from Federal income tax withholdings?

Some of the exemptions for FITW(Federal Income tax withholdings). If the employee owes no federal tax in the prior tax year and doesn't expect to this current year are exempt from withholdings.

How to calculate federal tax withholding?

Federal income tax withholdings are determined by using Form W-4(Employee's withholding certificate). Employees must complete Form W4 with the correct information so that, the employers can calculate the Federal withholding tax. Important information for calculating the federal taxes are

• Fill out this particular column in form w4(step 1 personal information(c) Single or Married filing separately, Married filing jointly or Qualifying surviving spouse, Head of household.
• Number of dependents.
• Pay frequency.

Methods for calculating federal tax withholdings

To calculate the federal tax withholdings use the following methods

Percentage method

The percentage method is used to calculate the federal income tax withholdings. Publication 15-t establishes the instruction to calculate the federal taxes using this method. Use worksheets 1A and percentage method tables and determine it. Here's an example for this method

Example 1:

Consider the employee in South Carolina who earns $80,000 as his annual salary and has a single marital status and two dependents in Form W4 with a semi-monthly pay schedule. His gross pay is $3,333.33.

Federal income tax calculation using the percentage method for 2024

Step 1: Adjust the employee's payment amount

1a)	Enter the employee’s total taxable wages for this payroll period	$3,333.33
1b)	Enter the number of pay periods you have per year	24(Semi-Monthly)
1c)	Multiply the amount on line 1a by the number on line 1b	$80,000.00
1d)	Enter the amount from Step 4(a) of the employee's Form W-4	$0.00 (No additional taxes for the employee)
1e)	Add lines 1c and 1d ($ 0.00 + $80,000.00)	$80,000.00
1f)	Enter the amount from Step 4(b) of the employee's Form W-4	$0.00
1g)	If the box in Step 2 of Form W-4 is checked, enter -0-. If the box is not checked, enter $12,900 if the taxpayer is married filing jointly or $8,600 otherwise	$8,600
1h)	Add lines 1f and 1g ($8,600 + $0 )	$8,600
1i)	Subtract line 1h from line 1e. If zero or less, enter -0-. This is the Adjusted Annual Wage Amount ($80,000.00 - $8,600)	$71,400

Step 2. Figure the Tentative Withholding Amount

2a)	Enter the employee's Adjusted Annual Wage Amount from line 1i or 1l above	$71,400
2b)	Find the row in the appropriate Annual Percentage Method table in which the amount on line 2a is at least the amount in column A but less than the amount in column B, then enter here the amount from column A of that row	$53,150(Based on percentage method table)
2c)	Enter the amount from column C of that row.	$5,426.00
2d)	Enter the percentage from column D of that row	22%
2e)	Subtract line 2b from line 2a ($71,400 - $53,150)	$18,250
2f)	Multiply the amount on line 2e by the percentage on line 2d ($18,250 * (22/100))	$4015
2g)	Add lines 2c and 2f ($5426 + $4015)	$9441
2h)	Divide the amount on line 2g by the number of pay periods on line 1b. This is the Tentative Withholding Amount ($9441/24)	$393.3

Step 3. Account for tax credits

3a)	If the employee's Form W-4 is from 2020 or later, enter the amount from Step 3 of that form; otherwise, enter -0- ($2000 *2)	$4000 (2 dependents)
3b)	Divide the amount on line 3a by the number of pay periods on line 1b ($4000/24)	$166.67
3c)	Subtract line 3b from line 2h. If zero or less, enter -0- ($393.3 - $166.67)	$226.7

Step 4. Figure the final amount to withhold

4a)	Enter the additional amount to withhold from the employee’s Form W-4 (Step 4(c) of the 2020 or later form, or line 6 on earlier forms)	$0.00 (No additional withholding)
4b)	Add lines 3c and 4a. This is the amount to withhold from the employee’s wages this pay period ($226.7 + $0.00)	$226.7

Wage bracket method

The wage bracket method is a straightforward method for calculating federal income taxes because it gives the exact amount that is withheld based on the employee's taxable wages, marital status, number of allowances, and payroll period. This does not include any formulas or calculations to calculate it.

How to report the federal income tax withholdings(FITW)?

Employers use Form 941 (Employer’s Quarterly Tax Return) to report the income taxes, social security, and medicare taxes for every quarter which are withheld from the employee's paychecks. It is used to report how much tax is deposited to the IRS.

Small Business employers use Form 944 to report to the IRS. If the annual tax liability for Social Security, Medicare, and federal income tax withholdings are less than $1000, Use Form 944 and report annually.