Withholding,
in general, usually refers to a deduction of money (as
'withholding tax') from an employee's wages or salary by
an employer, for projected or actual Income tax
liabilities.
You must withhold and pay Federal
and State payroll taxes such as Social Security,
Medicare, Unemployment Insurance, and personal
income tax if the basic withholding requirements
are met.
This withholding acts as a prepayment of
tax they will owe at the end of the year, as well as a
direct payment of certain other taxes.
Withholding payroll taxes is a complicated task.
The best way to approach this task is to use a
payroll software or
service.
W-4
IRS
Form W-4
Have each new
employee complete IRS form W-4.
You will use this form to calculate the amount of
federal income tax to withhold from the employee's
wages. Most of the states have income tax structures
that are based on the federal system, so you will use
the W-4 to calculate the amount of state income tax to
withhold as well.
Withholding Factors
The
amount of a person's federal income tax withholding
depends on several factors such as:
·the taxpayer's marital
status
·the number of children or
dependents the taxpayer has
·whether or not he is an
employee IRC 3401
·if the taxpayer wants to
claim child tax credits
·if the taxpayer holds two
or more jobs
·if the taxpayer plans to
itemize
·any
tax exemptions from withholding that the taxpayer
wants to claim
·any additional amount the
taxpayer wants to withhold
Sample Federal Income Tax Calculation
Here
is a sample Income tax calculation based on adjusted
gross income of $40,000: