Percentage-Withholding for Clients

hand on calculatorThe wage bracket method is the most straightforward approach – until you exceed 10 allowances.

By Barry J. Friedman, CPA

Clients may not be aware that the IRS has developed multiple methods that employers may use to withhold federal income tax from employees’ wages. One of the methods that often needs explaining is the percentage-withholding basis.

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Employers are required to withhold federal income tax from all employees’ wages unless the employee is exempt from the tax. The withholding amount is based on the employee’s taxable wages, marital status and number of allowances stated on his or her W-4 form, plus the withholding tax tables in IRS Circular E (or Publication 15). Employers can calculate federal income tax withholding using either Circular E’s wage bracket method or its percentage method.