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How to Use the Percentage Method Withholding Tables

Author: Alice Gilman

An employer must withhold federal income taxes from its employees' pay every pay period. The IRS has developed several methods an employer can use to fulfill this duty. The percentage method of withholding is most commonly used by an employer with an automated payroll system and third-party payroll service provider. An employer that cannot use the wage-bracket tables because its employees' wages exceed the upper bracket amounts may use the percentage method of withholding. This method works for any number of withholding allowances an employee claims and any amount of wages.

Separate tables apply for each pay period and the marital status of employees. The percentage method tables are issued before a calendar year ends and are to be used by employers in the following year. The IRS publishes the percentage method tables in IRS Publication 15, Circular E, Employer's Tax Guide.