Determine Federal Income and Employment Tax Withholding

Key Points

  • One of the most important payroll processes for all employers is withholding federal income and employment taxes (i.e., Social Security and Medicare taxes) from an employee's pay.
  • Proper withholding leads to correct paychecks and timely remittance of the taxes withheld to the appropriate government agencies without incurring costly penalties.
  • The income and employment tax withholding process requires an employer to know:
    • How to obtain, verify and correctly record employees' Social Security Numbers;
    • Which of the various withholding methods to use in any given situation and how to apply those methods to determine the correct amount of tax to withhold; and
    • How to determine withholding in special situations, such as when the employer receives an IRS Lock-In Letter for an employee, or if there is an extra pay period in a calendar year.

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