An employee's filing status plays a key role in federal income tax withholding. On line 3 of Form W-4, an employee can either select "Single," "Married," or "Married, but withhold at higher Single rate." Married status puts the employee in a lower tax bracket than single status. An employee who plans to file a joint tax return with her spouse should check "Married" on the W-4. If she intends to file separately, she should check "Married, but withhold at higher Single rate." If she checks "Married," calculate federal income tax according to the regulations for married filing jointly.
Step 1
Subtract pretax deductions from the employee's gross pay. This includes medical and dental insurance, dependent care, health reimbursement account contributions, qualified 401(k) contributions and transportation expenses. The remainder is the employee's taxable wages.
Step 2
Obtain the employee's number of allowances from line 5 of the W-4. Also, check line 6 to see if she wants additional tax withheld from each of her paychecks. This is important. If an employee and her spouse are both working and their total annual earnings from all jobs exceed $10,000, as of 2012, the employee should fill out the "Two Earners/Multiple Jobs Worksheet" on page 2 of the W-2. This helps her to avoid having too little tax withheld.
Step 3
Calculate federal income tax via the Internal Revenue Service Circular E tax-withholding tables. For married filing jointly, use the tax table that says "Married" and that matches the employee's taxable wages, pay period and number of allowances. For example, a married employee earns $420 weekly and claims two allowances. According to page 40 of the 2012 Circular E, the employee would pay $12 a week in federal income tax. If she had checked "Married, but withhold at higher Single rate," you would use the respective Circular E's "Single" tax table to figure the withholding.
Step 4
Apply your state's regulations to calculate state income tax, if applicable. If the state requires withholding at a flat percentage, filing status has nothing to do with the withholding process. For example, for Arizona employees, you would simply calculate state income tax withholding at the percentages they elect on Form A-4. However, in Georgia, on Form G-4, employees can choose "Single," "Married filing joint, both spouses working," "Married filing joint, one spouse working," "Married filing separate," or "Head of household." In this case, you would apply the state tax-withholding table that matches the G-4 form to figure the withholding.