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Learn Some Significant Federal Income Tax Withholding Methods

Federal tax reforms are a hot discussion topic these days as the Tax Cuts and Jobs Act (TCJA) enacted many changes that affect employees. Although many TCJA changes take effect on 1st Jan 2018, they’ll be there until 2025. TCJA retains seven brackets and often adjusts tax income and rates. The rates are meant to find backup federal income tax withholding rates and supplemental income, so these rates will keep changing. Before TCJA, 2017 tax rates were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Starting in 2018, tax rates changed to 10%, 12%, 22%, 24%, 32%, and 35% and 37%. Below we have mentioned the tax rates for federal income tax 2022 in tabular format.

Taxable Income Rates in 2022

Tax Rate 2022                                               For Singles                                                        For Married People Jointly Filing                                        Household Head                                                                      
10% $0 to $10,275 $0 to $20,550 $0 to $14,650
12% $10,276 t $41,775 $20,551 to $83,550 $14,651 to $55,900
22% $41,7756 to 89,075 $83,551 to $178,150 $55,901 to $89,050
24% $89,076 to $170,050 $178,151 to $340,100 $89,051 to $170,050
32% $170,051 to $215,950 $340,101 to $431,900 $170,051 to $215,950
35% $215,951 to $539,900 $431,901 to $647,850 $215,951 to $539,900
37% $539,901+ $647,851+ $539,901+

Understanding Federal Tax Withholding

There are many federal income tax withholding types from each of the employee’s paychecks, like:

  • Medicare
  • Social Security
  • Income

Both Medicare and Social Security are fixed-rate federal income tax withholding from employees’ wages and pay on the part of employees. Social security is 6.2% for employees and employers, making it around 12.4%. Medicare is 1.45% for employees and employers, with 2.9% tax. The two taxes (FICA) fund various federal programs.

The federal income tax withholding can vary among employees. IRS bases FITW on total taxable wages. Besides the Medicare and Social Security taxes, the federal income taxes don’t go on a certain program. The government also uses federal income taxes from employees to fund different programs (e.g., veteran and defense benefits).

How To Calculate Withholding Of Federal Income Tax?

A federal income tax withholding varies among employees. Let’s look at the tax calculation tips.

All employees have various FITW. The IRS also determines the federal tax on factors varying between employees, like

  1. Total dependents number.
  2. Status of filing (like the household head)

Check for federal income tax withholding tables 2022.

Withholding Tax Forms 2022

File FR-900A when you file a wage annually with a threshold of less than $200 annually. Note: 2020 FR-900A is due on 31st Jan 2021. You can have due deposits by 20th Jan 2021 for the past calendar year.

File FR-900Q when you want to pay quarterly or monthly. Starting 1st Jan 2019, if you’ve got a household employee, you should obtain FEIN and report any federal income tax withholding with FR-900Q.

Also,  if you don’t file non-wage, indicate it by shading an oval on the payment voucher.

These are the federal income tax withholding tables for 2022:

Filing Form Filing Title Date
FR-900Q 2021

 

FR-900Q 2021 (Fill-in)

 

2021 FR-900Q

(Instructions)

Payer/Employer Withholding Tax Quarterly Return

 

Avoid using the FR-900A form as an Annual Reconciliation Return

On or before the 20th quarter day following the reported quarter.
2021 FR-900NP

2021 FR-900NP (Fill-in)

2021 FR-900NP Instructions

Annual Return to Withhold the Reported on Forms W-2G and Forms 1099 File on or before 31st Jan 2022
2021 FR-900P

2021 FR-900P (Fill-in)

Payment Voucher to Withhold Tax Like Necessary
Form WT

 

Form WT (Fill-in)

Transmittal for Paper Forms W-2/1099 31st Jan 2022

 

When any due date falls on Saturday, Sunday, or a legal holiday, you should file the statements on the next day of business.

D-4

 

D-4 (Fill-in)

Note: At present, the D-4 is under review.

Employee Withholding Allowance Certificate

File this with the employer while beginning new employment or claiming a change in allowances.
D-4 A

D-4 A (Fill-in)

Note: Currently, D-4 A is under review

 

Non-residence Certificate DC

File it with the employer on request
Unemployment Compensation Program DC Department of Employment Services Unemployment Withholding.  

Frequency Of Pay

While it is possible to find federal income tax withholding by hand, you can simplify the process by using effective payroll software. The payroll software calculates federal income tax withholding after processing the payroll, saving you some time.

When you want to calculate FITW by hand, you can use IRS Publication 15-T and Publication 15 for calculating withholdings.

Publication 15 also provides detailed information about the FITW and taxing different income types for the employees. FITW worksheet and IRS tax tables are in the 15-T publication of IRS.

The IRS has two methods of calculating federal income tax withholding: the percentage method and the wage bracket method. Both the ways offer similar calculations. The Reference Publication 15-T is for charts and other information to help select the method that suits you.

After deciding to use the federal income tax withholding table, you should gather employee information. You also have to pay employee frequency and the total pay period earnings on the W-4 Form. You can get some help for federal income tax withholding with their data.

Tips On Filing W-4 Form

Again, you would need the W-4 Form information to calculate income tax withholdings from the employees. Let’s know about Form W-4.

Form W-4 is the document for employees to notify tax withholding employers. Also, you should ask the employees to fill out the form after working. The form contains the filing status and employee list, dependent number, and other form withholdings.

With dependents, you also decrease the withholdings as with the deductions worksheet on W-4 Form. Employees increase withholdings after listing additional amounts for withholding from all the federal income tax checks.

For example, when a single employee with zero dependents has a maximum FITW amount from the paycheck. An employee with a single dependent has fewer federal income tax withholding from the paycheck.

Any employee filing under the household head or married status has less federal income tax 2022 than an employee filing single.

Withholding Exemption

You can hire an employee exempted from the federal income tax withholding. You shouldn’t withhold the federal income tax from the employees’ paychecks in any exemption case.

Employees should indicate if they are “FITW exempt” on the Form W-4 on the 4th step after writing “EXEMPT.”

How To Deposit Income Tax?

After finding the employee’s federal income tax withholding, the IRS needs you to deposit taxes regularly. Don’t keep or use federal income tax 2022 for any other purpose. Holding the money or using it is not legal, and you can be subjected as a criminal under civil sanctions.

IRS determines income tax deposit frequency and notifies the changes. The two deposit schedules are semi-weekly or monthly.

You should pay the monthly deposits till the 15th day of the month following the end of the calendar month. For example, the January deposits are due on 15th Feb. When the 15th of the month is a holiday or weekend, you can deposit taxes on another business day.

Semi-weekly deposits also depend on the pay date. When the payment date is on Wednesday, Thursday, or Friday, deposit taxes after the following Wednesday.

Payment dates falling on Saturday, Sunday, Monday, or Tuesday have deposit dates on the following Friday.

IRS uses Form 941 for determining the deposit schedule on a certain lookback time. Advanced deposit schedule instructions are in Publication 15.

Deposit FICA taxes whenever you deposit FITW.

Use Electronic Federal Tax Payment System (EFTPS) for electronic tax deposits. You need to pay the penalty when you don’t make your deposits on time.

Read Also: IRC Section 1202: Qualified Small Business Stock Checklist

Federal Reporting Income Tax

You should report how much federal tax your deposit is. For this, you should either report Form 941 or Form 944.

You should File Form 941 by the last month following the end of the quarter. The filing schedule for the 941 forms is

  • April 30 for the first quarter
  • July 31st for the second quarter
  • January 31st for the fourth quarter

Form 944 is an annual form because of January 31st of the year. Only you should use Form 944 when the IRS notifies you in writing.

Withholding Errors From Federal Income Tax

While there are any chances of mistakes, you should correct them after filing the form. Use Form 941-X to correct errors and the quarterly forms and check the quarters for correcting. From 944 has the correction form – Form 944 X.

When you withhold and deposit tax, submit a correction form to the IRS for a refund. You should find out any errors such as you did not calculate or deposit tax or any other mistakes. You can use the 941-X form for fixing errors and making a payment for the amount owed. To withhold taxes and know about the latest reforms in federal income tax withholding processes, you can reach out to our proficient experts at Business Tax Benefits. We create the most business-centric solutions for tax filing and ensure cost-cutting for your business. 

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