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.
