Publication 15: Circular E, Employer's Tax Guide; Chapter 16 How To Use the Income Tax Withholding & Advance Earned Income Credit (EIC) Payment Tables

Publication 15

2001 Tax Year

Chapter 16
How To Use the Income Tax Withholding &
Advance Earned Income Credit (EIC) Payment Tables

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Income Tax Withholding

There are several ways to figure income tax withholding. The following methods of withholding are based on information you get from your employees on Form W-4, Employee's Withholding Allowance Certificate. See section 9 for more information on Form W-4.

Wage Bracket Method

Under the wage bracket method, find the proper table (on pages 36-55) for your payroll period and the employee's marital status as shown on his or her Form W-4. Then, based on the number of withholding allowances claimed on the Form W-4 and the amount of wages, find the amount of tax to withhold. If your employee is claiming more than 10 withholding allowances, see below.

Note: If you cannot use the wage bracket tables because wages exceed the amount shown in the last bracket of the table, use the percentage method of withholding described below. Be sure to reduce wages by the amount of total withholding allowances in Table 5 before using the percentage method tables (pages 34-35).

Adjusting wage bracket withholding for employees claiming more than 10 withholding allowances. The wage bracket tables can be used if an employee claims up to 10 allowances. More than 10 allowances may be claimed because of the special withholding allowance, additional allowances for deductions and credits, and the system itself.

To adapt the tables to more than 10 allowances:

Multiply the number of withholding allowances over 10 by the allowance value for the payroll period. (The allowance values are in Table 5, Percentage Method--2002 Amount for One Withholding Allowance later.)
Subtract the result from the employee's wages.
On this amount, find and withhold the tax in the column for 10 allowances.

This is a voluntary method. If you use the wage bracket tables, you may continue to withhold the amount in the "10" column when your employee has more than 10 allowances, using the method above. You can also use any other method described below.

Percentage Method

If you do not want to use the wage bracket tables on pages 36 through 55 to figure how much income tax to withhold, you can use a percentage computation based on Table 5 and the appropriate rate table. This method works for any number of withholding allowances the employee claims and any amount of wages.

Use these steps to figure the income tax to withhold under the percentage method:

Multiply one withholding allowance for your payroll period (see Table 5 below) by the number of allowances the employee claims.
Subtract that amount from the employee's wages.
Determine the amount to withhold from the appropriate table on pages 34 and 35.

Table 5. Percentage Method--2002 Amount for One Withholding Allowance

Payroll Period	One Withholding Allowance
Weekly	$57.69
Biweekly	115.38
Semimonthly	125.00
Monthly	250.00
Quarterly	750.00
Semiannually	1,500.00
Annually	3,000.00
Daily or miscellaneous (each day of the payroll period)	11.54

Example: An unmarried employee is paid $600 weekly. This employee has in effect a Form W-4 claiming two withholding allowances. Using the percentage method, figure the income tax to withhold as follows:

Percentage Method Example

To figure the income tax to withhold, you may reduce the last digit of the wages to zero, or figure the wages to the nearest dollar.

Annual income tax withholding. Figure the income tax to withhold on annual wages under the Percentage Method for an annual payroll period. Then prorate the tax back to the payroll period.

Example: A married person claims four withholding allowances. She is paid $1,000 a week. Multiply the weekly wages by 52 weeks to figure the annual wage of $52,000. Subtract $12,000 (the value of four withholding allowances for 2002) for a balance of $40,000. Using the table for the annual payroll period on page 35, $4,432.50 is withheld. Divide the annual tax by 52. The weekly tax to withhold is $85.24.

Alternative Methods of Income Tax Withholding

Rather than the Percentage or Wage Bracket Methods described on page 32, you can use an alternative method to withhold income tax. Pub. 15-A, Employer's Supplemental Tax Guide, describes these alternative methods and contains:

Formula tables for percentage method withholding (for automated payroll systems).
Wage bracket percentage method tables (for automated payroll systems).
Combined income, social security, and Medicare tax withholding tables.

Some alternative methods explained in Pub. 15-A are annualized wages, average estimated wages, cumulative wages, and part-year employment.

Advance Payment Methods for the Earned Income Credit (EIC)

To figure the advance EIC payment, you may use either the Wage Bracket Method or the Percentage Method explained below. You may use other methods for figuring advance EIC payments if the amount of the payment is about the same as it would be using tables in this booklet. See the tolerances allowed in the chart in section 10 of Pub. 15-A. See section 10 in this booklet for an explanation of the advance payment of the EIC.

The number of withholding allowances an employee claims on Form W-4 is not used in figuring the advance EIC payment. Nor does it matter that the employee has claimed exemption from income tax withholding on Form W-4.

Wage Bracket Method

If you use the wage bracket tables on pages 58 through 61, figure the advance EIC payment as follows.

Find the employee's gross wages before any deductions using the appropriate table. There are different tables for (a) single or head of household (b) married without spouse filing certificate (c) married with both spouses filing certificates. Determine the amount of the advance EIC payment shown in the appropriate table for the amount of wages paid.

Percentage Method

If you do not want to use the wage bracket tables to figure how much to include in an employee's wages for the advance EIC payment, you can use the percentage method based on the appropriate rate table on pages 56 and 57.

Find the employee's gross wages before any deductions in the appropriate table on pages 56 and 57. There are different tables for (a) single or head of household (b) married without spouse filing certificate (c) married with both spouses filing certificates. Find the advance EIC payment shown in the appropriate table for the amount of wages paid.

Whole-Dollar Withholding and Paying Advance EIC (Rounding)

The income tax withholding amounts in the wage bracket tables (pages 36-55) have been rounded to whole-dollar amounts.

When employers use the percentage method (pages 34-35) or an alternative method of income tax withholding, the tax for the pay period may be rounded to the nearest dollar.

The wage bracket tables for advance EIC payments (pages 58-61) have also been rounded to whole-dollar amounts. If you use the percentage method for advance EIC payments (pages 56-57), the payments may be rounded to the nearest dollar.