Question

What is the simplest method for finding the amount of federal income tax to be deducted from an employee’s gross pay?

Answer 1

For finding the amount of federal income tax to be deducted from an employee's gross pay use the following steps

1. At the time of hiring, collect duly filled Form W-4 from every employee. Make sure that the employee's social security number, employee's marital status, number of allowances etc. are correct and updated.

2. Maintain proper records that'd facilitate calculation of gross pay. Examples are as follows
-For salaried employee - Gross pay = Total annual pay / Number of pay period
-For hourly employee - Gross pay = Number of hours X Hourly rate

Also calculate overtime in addition to the gross pay.

3. Calculate the withholding tax. Make sure the calculation is as per the tax tables from IRS. The IRS also has a witholding tax calculator for making things easy.

4. Calculate other deductions as well. These calculations are less complicated and are more direct. FICA taxes are 15.3% of employee's gross pay.

5. Consider all other deductions applicable.

6. Calculate final net pay.