Withholding Taxes: How to Calculate Payroll Withholding Tax Using the Percentage Method
There are multiple ways to calculate withholding taxes. One way is by using the Percentage Method.
To begin using the Percentage Method, you must have the employees W-4 form. The employees W-4 form will outline how many allowances the employee is claiming. This information is always necessary when calculating withholding taxes.
Your first step is to determine your payperiod, whether you are paying on a weekly, biweekly, or monthly basis.
You will then multiply one withholding allowance for your payroll period by the number of allowances indicated on the employee's W-4 form.
Next, you will subtract this amount from the employees wages.
You will then go to Publication 15, pages 43-44 and use the Percentage Method Withholding Tables to determine the amount of withholding taxes for your employee.
Please make sure that you are using the correct IRS table, the correct pay period section and the correct marital status column.
All of these steps are outlined in the above video with two very detailed step by step examples.