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What You Need To Know To Calculate Federal Tax Withholdings
It can be frustrating to calculate federal tax withholdings. This is because it is a complex process to figure the IRS tax code. This is a problem that keeps growing because the number of people who are underpaying taxes is increasing. This guide provides you with the necessary steps to follow when calculating federal tax withholdings.
Start by using the IRS withholding calculator. This will help you know if a lot is being withheld. You need to get a new W-4 form. You have to obtain your recent withholding from the previous 1099 or W-2 form. Next you need to identify your gross income for the entire years. You have to know your filing status. This is because it will help in determining the federal tax withholding rate. In most cases the status is single, married or head of household.
Also, you need to know your allowances. This is because it will help you when filling the W-4 form. It assists in determining the amount that is withheld from your paycheck. More allowances means that the amount that will be withheld is less. If you have zero allowance, the amount withheld will be more or a larger refund. The next step would be to claim your deductions. This is in case the deductions are more than $6300. You should deduct expenses like healthcare costs, retirement payments, and donations. It is vital you check with IRS. The IRS has circular E or Publication 15 that indicates the amount that needs to be withheld out of a paycheck.
It is important you calculate the percentages. This information can be got from page 43 of the IRS publication. It will help in calculating withholding percentage. You just have to know your allowances and then multiply it by the figure that is listed in table 5. This will be determined by how you get paid. later you need to subtract that amount from the pay. Afterwards, use the tables provided on pages 45 and 46 to know your filing status and the frequency in which you get paid. This will help you know the income tax withheld.
After you are through with calculating the federal tax withholdings, you need now to find your payroll withholdings. Calculate the social security tax. The process is a simple one. You need to multiply your gross pay by 6.2%. But for Medicare tax, you multiply your gross pay by 1.45%. Check for any additional Medicare taxes.If you make a specific amount, you will be required to make payment for additional Medicare taxes. If you are a single earner who get more than $125,000 yearly or married and earn more than $250,000 each year, you will be required to pay 0.9% in Medicare taxes.