With tax season just around the corner, many small business owners may wonder about their role in taxes for their business and their employees. A common question is, how much federal income tax should be withheld from employee paychecks? To figure this out, employers should review the income tax withholding tables.
What is a Tax Withholding Table?
A federal tax withholding table is a chart that helps employers figure out how much income to withhold from their employees. This is usually in federal income tax, Social Security, and Medicare. These tables may also include state income tax depending on the state in which the business is located.
Where Can I Find the Tax Withholding Charts?
Businesses figure out what to withhold by using the Internal Revenue Service's federal tax withholding tables in Publication 15-T and also Publication 15, also known as Circular E. These publications go over what’s new for the upcoming tax season, any changes or additions that have been made in regards to withholding income tax, and a reminder of calendar dates in which to have articles submitted or given to employees. For instance, employees must receive either a 1099 or a W-2 by the end of January.
These publications also go over the primary responsibilities you as the employer have for reporting, depositing, withholding, paying, and correcting employment taxes. It goes over the forms you need to give your employees and those you need to send to the IRS.
Some sections go over the title and filing you would do for those businesses run by some or all family members. For example, if you and your spouse are running a business together and sharing profits and losses, you are considered partners, regardless of whether you have a formal agreement.
How Do I Use an Income Tax Withholding Table?
Since the federal income tax withholding brackets can change annually, reviewing these tables every year is essential. The best way to do this is through Circular E from the IRS. This document is a helpful guide for small business owners and businesses in general. It is an easy step-by-step manual that will help calculate what to take from your employees regarding the income tax based on how much you are paying them.
