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Federal and state governments expect payment of income taxes as you earn the money. Employees complete Internal Revenue Service Form W-4 when starting employment, and this form determines required or involuntary payroll deductions for federal income taxes. Additionally, federal and state legislatures establish percentages for other deductions from your paycheck, including Social Security and state income taxes. You may also select voluntary deductions for insurance or retirement savings accounts. Calculate correct federal and state income taxes by using the same information your employer uses.
Check your pay stub or salary information to establish how often you get paid. Payment every two weeks is biweekly pay and creates 26 pay periods in a year. Payment twice a month, such as on the first and 15th, is semimonthly and gives you 24 pay periods in the year.
Refer to your most recent IRS Form W-4 for the number of allowances you claimed and any additional amounts you requested withheld from your paycheck.
Subtract any income from the biweekly or semimonthly total that qualifies for pretax deduction, such as an individual retirement account or flexible spending account, since this income doesn’t count in federal income tax calculations.
Review the tax tables in IRS Circular E starting about page 38 to determine your federal income tax withholding. For example, if you claim two allowances on your W-4 and are married, request no other withheld amounts, receive semimonthly payments and make $1,000 a pay period, your withholding for federal income tax is $36 in 2012.
Refer to your state income tax withholding tables to calculate any amounts withheld by your employer for your state taxes. State income tables are available from your state’s department of revenue. Seven states, including Texas and Alaska, have no state income tax.
Compare your calculations with your pay stub. Note that Social Security and Medicare payments are a percentage of your gross income each pay period. This may show as OASDI, or Old Age, Survivors and Disability Insurance, on your pay stub. Social Security tax is 4.2 percent and Medicare tax is 1.45 percent of your total income in 2012.
Social Security taxes a percentage of your total income up to $110,100 in 2012. Once that amount is taxed in the year, you don’t pay Social Security taxes again until the next year. The taxable income for Social Security goes up with the cost of living increase. Your employer calculates Medicare taxes on your total income with no ceiling.
The IRS.gov website has a calculator for estimating your federal tax withholding.
If your income varies each paycheck, multiply your hourly rate by the number of hours you work in a pay period. Use the IRS Circular E table for your employer’s payment schedule and your W-4 information to determine your tax liability.
Some employers use a software program or percentage calculations from page 36 of Circular E, not the tax tables. If your withholding calculations aren't identical to those of your employer, the difference may be explained in the different processes used. Your Form 1040 income tax return reconciles what you paid with what you owe, correcting any differences in calculations.
Items you will need
- Pay stub or salary information
- Completed IRS Form W-4
- Withholding tables for your state
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