Calculating Employee Withholding Taxes

People in this day and age want to be able to know exactly how much tax is going to be withheld from their wages over the course of the year. Having this information will allow a person the ability to better plan and budget for the coming year. It will also allow the person to plan for tax payments or a possible refund at the end of the year.

There are many internet sites, including the Internal Revenue Service (IRS) site that will tell a person the ways that they can calculate their withheld taxes each year. The amount of tax that is withheld from paychecks varies from state to state and also varies depending upon how many exemptions or deductions are listed and how much additional tax a person requests to be taken out of the check.

The easiest way to calculate an approximate withholding amount is to receive the first paycheck, take the amount withheld from that check and multiply that amount by the number of pay periods that there are in a year. If the person is paid daily multiply by 365, weekly by fifty-two, bi-weekly by twenty-six or monthly by twelve. One of the problems with this method is that the withheld amount will fluctuate from pay period to pay period according to how many hours have been worked. The IRS internet site contains calculations that are more accurate for calculating annual tax withholdings that will be more accurate than guessing. Also, the withholding amount will differ based upon exemptions, dependents, and whether or not a person is filing individually or joint filing with a partner or spouse.

The IRS statistics for the year 2004 nation wide tax withholdings are shocking, to say the least. In 2004, the tax withholdings that were collected totaled $990.25 million. Approximately sixty-five percent of people who filed claimed the standard deductions and thirty-four percent of people who filed claimed itemized deductions. This means that the government is withholding nearly one billion dollars worth of taxes from people each year. According to the same set of statistics from 2004, the number of individual income tax refunds claimed was by 102 million people with the average refund amount being $2,154.

What most people do not know is that the standard amount of tax that is deducted or withheld from a person’s paycheck totals up to $5,150 for a single person or a married individual whose spouse is employed and up to $10,300 for a married individual whose spouse is unemployed. According to the IRS, the amount of Federal taxes that can be withheld cannot exceed five hundred dollars from one paycheck. By knowing these figures, a person will be better able to understand how much tax is being withheld from their paychecks each year.

The easiest way to calculate withholding tax is to use the withholding calculator on the IRS internet site. The key tips to use are to have their most recent pay stubs and their tax return from the previous year at hand when they sit down to fill out the form. Once the form is filled out, the calculation is complete and the summary has popped up on the screen, the person should print out two copies of the final screen. One form will help the person fill out a new W-4 form and the other form should be kept to file away with tax information. These are all the ways that a person can use in order to calculate the withholding tax from their annual pay. Once this is known, a person can start to build a better budget in order to plan the year ahead and can start to plan how their tax refund will be put to use.