A “First of its Kind” PFML Plan launches in New Hampshire
Beginning in December 2022, employers can start enrolling in New Hampshire's new voluntary Paid Family and Medical Leave plan for employers and employees of all types of businesses.
You’ve hired employees, and onboarded them properly. Now it’s time to pay them. But how?
There are several methods to determine how to withhold federal taxes from your employees’ paychecks properly. The most common are the wage bracket method and the percentage method - all based on what your employees enter on their W-4s.
First, find the proper table in IRS Publication 51 for your payroll period - the period of service for which you pay wages - and your employee’s marital status listed on his or her W-4. Holidays, and a new employee starting mid-week, can affect your payroll period. Find the proper amount to withhold by taking these and the number of withholding allowances on his or her W-4 and the amount of taxable wages.
If you cannot use the wage bracket method because your employee’s taxable wages exceed the amount shown in the last bracket of the tables in IRS Publication 51, you must use the percentage method of withholding. Before using this option, reduce taxable wages by the number of total allowances. If the result ultimately exceeds the last bracket, you’ll know for sure the percentage method is needed.
The percentage method tables (page 46 of Publication 51) contain formulas for single and married employees for weekly, bi-weekly, semi-monthly, monthly, daily or miscellaneous, quarterly, semi-annual, and annual payroll periods. This method works for any number of withholding allowances the employee claims, and any amount of taxable wages.
To figure out federal income tax, follow these steps:
Here is an example: You pay your single employee $1,100 bi-weekly. She has two withholding allowances marked on her W-4. Based on the percentage method, the math would look something like this:
Total gross payment: $1,100.00.
Payroll period (bi-weekly) allowance: $159.60.
Allowances on W-4: Two.
Payroll period amount multiplied by allowance amount: $319.20
Amount subject to withholding ($319.20 subtracted from the total gross payment of $1,100.00): $780.80
Tax to withhold from $780.80 from marital status (single): $64.67**
*This is found in IRS Publication 51.
**You can round numbers by reducing the last digit to zero or figuring the wages to the nearest dollar.
You may use whichever withholding method is best suited to your particular payroll situation. The number of employees at your business, the payroll system you use, and type of equipment at your disposal may factor into your decision.
Which withholding method do you use? Let us know on PayrollTalk!