How to Calculate Federal Tax Withholding for Payroll

To calculate federal tax withholding for payroll, you need four things in hand: the employee’s completed Form W-4, their gross taxable wages for the pay period, the pay frequency, and the current year’s IRS Publication 15-T. From there you run the wages through one of two IRS-approved methods for income tax (wage bracket or percentage), then add Social Security and Medicare at fixed rates. Federal law requires every employer paying wages to withhold according to the tables and procedures the IRS prescribes.¹

What You Need Before You Start

Pull the employee’s Form W-4, the Employee’s Withholding Certificate.² Four entries drive the calculation:

Filing status (Step 1) — Single, Married Filing Jointly, or Head of Household. This sets which column of the withholding table applies.
Multiple Jobs checkbox (Step 2). If checked, you use a different set of tables in Publication 15-T.
Dependents (Step 3). Employees may claim $2,200 per qualifying child under 17 and $500 per other dependent. That total reduces annual withholding and is prorated across pay periods.
Other adjustments (Step 4): additional income (4a), extra deductions (4b), and any flat dollar amount the employee wants withheld on top of the calculated tax (4c).

If the employee never submitted a W-4, withhold as if they filed Single or Married Filing Separately with nothing else entered.³

Next, get to taxable wages. Start with gross pay for the period, then subtract pre-tax items. Traditional 401(k) contributions are not subject to federal income tax withholding at the time of deferral.⁴ Employer-sponsored health premiums, HSA contributions, and FSA elections generally come out before withholding too. What remains is the wage figure you plug into the tables.

The pay frequency (weekly, biweekly, semimonthly, monthly) tells you which table to use. Publication 15-T holds the current tables and worksheets for both methods and is updated every year for inflation.⁵

Wage Bracket Method

The wage bracket method is a lookup. Open Publication 15-T to the table matching the pay frequency, then pick the section for employees who checked Step 2 or the section for those who did not. Find the row that contains the employee’s taxable wages, follow it across to the column for their filing status, and read the withholding amount.

If Step 4(c) shows an extra amount, add it to the table result. That’s the federal income tax to withhold for the period.

One limit: the wage bracket tables generally stop around $100,000 in annualized wages.⁵ Above that, switch to the percentage method.

Percentage Method

The percentage method is a formula. It handles any wage level and is what most payroll software runs under the hood. Three steps:

Adjust the wage amount. Take taxable wages for the period (gross minus pre-tax deductions), then subtract the standard deduction allowance for that pay frequency and filing status shown in Publication 15-T.
Find the tentative withholding. Apply the percentage method table to the adjusted wages. The table mirrors the progressive brackets, with marginal rates from 10% to 37%. You multiply the portion of wages in each bracket by that bracket’s rate and add the cumulative fixed amount the table shows.⁵
Apply the W-4 adjustments. Subtract the Step 3 dependent credit, prorated across the annual pay periods. Add any Step 4(c) extra withholding.

The result tracks year-end tax liability more closely than the bracket method because it applies the actual marginal rate structure to each dollar.

Social Security and Medicare

Income tax is one piece. On the same paycheck you also withhold FICA — Social Security and Medicare. These rates are fixed; the W-4 does not affect them.

Social Security: 6.2% on the employee’s wages, matched by 6.2% from the employer. The tax applies only up to the annual wage base, which is $184,500 for 2026. Once year-to-date earnings hit that cap, stop withholding Social Security for the rest of the year.⁶
Medicare: 1.45% employee, 1.45% employer, no wage cap.⁷
Additional Medicare Tax: withhold an extra 0.9% on wages above $200,000 in a calendar year, regardless of filing status. No employer match.⁸

The $200,000 withholding threshold is the same for every employee. The actual filing-year liability threshold depends on filing status — $250,000 for married filing jointly and $125,000 for married filing separately — so some employees will reconcile up or down on their return.⁸ Your job is to withhold at $200,000; the rest is theirs to sort out.

Bonuses and Other Supplemental Wages

Bonuses, commissions, overtime, and similar payments on top of regular salary are supplemental wages. When an employee’s supplemental wages for the year are $1 million or less, you have two options:⁹

Flat rate method: withhold 22% on the supplemental payment. Simplest when the bonus is paid separately from regular wages.
Aggregate method: combine the supplemental wages with regular wages for the pay period, calculate withholding on the total as one payment, then subtract what would have been withheld on the regular wages alone. The remainder is the withholding on the bonus.

Once total supplemental wages from your company cross $1 million in a calendar year, every dollar above that must be withheld at 37%, regardless of the W-4.⁹

Grossing Up to a Target Net

Sometimes you want the employee to net a specific amount. The formula: desired net divided by (1 minus the withholding rate). For a $5,000 net at the 22% flat rate, $5,000 ÷ 0.78 gives a gross bonus of roughly $6,410. Social Security and Medicare also apply to the gross, so a complete gross-up needs those rates factored in too.

When an Employee Is Exempt

An employee can claim exemption from federal income tax withholding if they had no tax liability last year and expect none this year. They check the exempt box on the W-4 and skip Steps 3 and 4.² The claim expires each year: an employee exempt on a 2026 W-4 must submit a new one by February 16, 2027, or you begin withholding as if no W-4 were on file. Exemption is only from income tax — Social Security and Medicare still come out.

When the IRS Sends a Lock-In Letter

If the IRS decides an employee is under-withholding, it can send you a lock-in letter specifying the arrangement you must use. Starting on the effective date (at least 60 days after the letter), you follow the lock-in and cannot reduce withholding below the specified level without IRS approval.¹⁰ If the employee later submits a W-4 asking for more withholding than the letter requires, honor it. If a new W-4 would lower withholding below the lock-in, ignore it. Employers who disregard a lock-in can be held liable for the tax that should have been withheld.

After You Calculate

Calculating is only the first half. The federal income tax, Social Security, and Medicare you withhold must be deposited electronically, typically through EFTPS, on a monthly or semiweekly schedule set by a lookback period, and reported quarterly on Form 941 (or annually on Form 944 for the smallest employers).¹¹¹² Deposit schedules and Form 941 mechanics are worth confirming before your first payroll run, because a correct calculation still gets penalized if the money reaches the Treasury late.

1
Office of the Law Revision Counsel. 26 USC 3402 – Income Tax Collected at Source
2
Internal Revenue Service. Form W-4, Employee’s Withholding Certificate
3
Internal Revenue Service. Topic No. 753, Form W-4, Employees Withholding Certificate
4
Internal Revenue Service. 401(k) Plan Overview
5
Internal Revenue Service. Publication 15-T (2026), Federal Income Tax Withholding Methods
6
Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
7
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
8
Internal Revenue Service. Topic No. 560, Additional Medicare Tax
9
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide – Section: 7. Supplemental Wages
10
Internal Revenue Service. Withholding Compliance Questions and Answers
11
Internal Revenue Service. Depositing and Reporting Employment Taxes
12
Internal Revenue Service. Instructions for Form 941 (Rev. March 2026)