Information provided on Employee Withholding Allowance Certificates lets a company know how much federal and state income tax to withhold from each employee’s pay based on filing status and the number of exemptions he or she claims. Keep in mind, the more exemptions claimed, the less that the employee has withheld from his or her paycheck. However, that employee might owe money when it comes time to pay taxes. Keep in mind that you might be doing business in a state with no state income tax, in which case there is no form for state withholding. Since the state isn’t asking people to pay taxes, there’s no reason that your employees will need to fill out a withholding form. [2] X Research source
Don’t forget to factor in any overtime, commissions, or bonuses awarded during the pay period. Pay periods may be weekly, bi-weekly, or monthly. If the period is bi-weekly, for instance, then a full-time employee should work about 80 hours. An employee with a fixed salary will earn the same amount no matter how many hours they work.
For federal taxes, you’ll look up the withholding amount based on the employee’s gross pay, filing status, and the number of exemptions claimed. Then, you’ll deduct that amount from the gross pay. For states taxes, consult your state’s department of revenue website for instructions about how much to withhold.
Examples of voluntary contributions include 401(k) contributions, deferred compensation programs, long-term disability, and flexible spending accounts. Examples of mandatory deductions include child support and alimony.
