There are several methods to figure the income tax withholding for
employees. The most common are the wage bracket method and the
percentage method.
Wage Bracket Method
Under the wage bracket method, find the proper table (on pages 22
through 41) for your payroll period and the employee's marital status
as shown on his or her Form W-4. Then, based on the number of
withholding allowances claimed on the Form W-4 and the amount of
wages, find the amount of tax to withhold. If your employee is
claiming more than 10 withholding allowances, see below.
Note:
If you cannot use the wage bracket tables because wages exceed
the amount shown in the last bracket of the table, use the percentage
method of withholding described below. Be sure to reduce wages by the
amount of total withholding allowances (shown in the table on this
page) before using the percentage method tables on pages 20 and 21.
Adjusting for employees claiming over 10 withholding
allowances.
To adapt the wage bracket tables for employees who are claiming
over 10 allowances:
- Multiply the number of withholding allowances that is over
10 by the allowance value for the payroll period. (The allowance
values are in the Percentage Method--2001 Amount for One
Withholding Allowance table on this page.)
- Subtract the result from the employee's wages.
- On this amount, find and withhold the tax in the column for
10 allowances.
This is a voluntary method. If you use the wage bracket tables, you
may continue to withhold the amount in the "10" column when your
employee has more than 10 allowances, using the method above. You can
also use the other methods described below.
Percentage Method
If you do not want to use the wage bracket tables on pages 22
through 41 to figure how much income tax to withhold, you can use the
percentage method based on the table on this page and the appropriate
rate table. This method works for any number of withholding allowances
the employee claims and any amount of wages.
Use these steps to figure the income tax to withhold under the
percentage method:
- Multiply one withholding allowance (see table on this page)
by the number of allowances the employee claims.
- Subtract that amount from the employee's wages.
- Determine the amount to withhold from the appropriate table
on page 20 or 21.
1999 percentage method table
Example.
An unmarried employee is paid $600 weekly. This employee has a Form
W-4 in effect claiming two withholding allowances. Using the
percentage method, figure the income tax withholding as follows:
| 1. |
Total wage payment
|
| $600.00 |
| 2. |
One allowance |
$55.77 |
| 3. |
Allowances claimed
on Form W-4 |
2 |
| 4. |
Line 2 times line 3
|
|
111.54 |
| 5. |
Amount subject to
withholding (subtract line 4 from line 1) |
|
$488.46 |
| 6. |
Tax to be withheld
on $488.46 from Table 1-- single person, page 20 |
|
65.62 |
To figure the income tax to withhold, you may reduce the last digit
of the wages to zero, or figure the wages to the nearest dollar.
Annual income tax withholding.
Figure the income tax to withhold on annual wages under the
Percentage Method for an annual payroll period. Then prorate the tax
back to the payroll period.
Example.
A married person claims four withholding allowances. She is paid
$1,000 a week. Multiply the weekly wages by 52 weeks to figure the
annual wage of $52,000. Subtract $11,600 (the value of four
withholding allowances annually) for a balance of $40,400. Using Table
7--Annual Payroll Period, the annual withholding is $5,092.50.
Divide the annual amount by 52. The weekly withholding is $97.93.
Alternative Methods of Income Tax Withholding
Rather than the Percentage or Wage Bracket Methods described above,
you can use an alternative method to withhold income tax. Pub.
15-A, Employer's Supplemental Tax Guide, describes these
alternative methods.
Rounding.
If you use the percentage method or alternative methods for income
tax withholding, you may round the tax for the pay period to the
nearest dollar. The wage bracket tables are already rounded for you.
If rounding is used, it must be used consistently. Round withheld
tax amounts to the nearest whole dollar by (1) dropping amounts under
50 cents and (2) increasing amounts from 50 to 99 cents to the next
higher dollar. For example, $2.30 becomes $2, and $2.80 becomes $3.
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