How to Withhold Payroll Taxes

All employers are required under Federal law to withhold payroll taxes for all employees unless the work is contracted and the employee will be receiving a 1099 at the end of the year. Not complying with federal payroll tax laws can result in large fines for the employer, so it is vital that all employers understand how to withhold payroll taxes.

1. Determine the amount of taxes that need to be deducted. This amount will vary by employee. Each employee should fill out a W4 form prior to beginning employment; this form will include tax information such as the number of dependents the employee is able to claim.


2. Consult the IRS table that shows the amount of taxes that are to be withheld depending on the employee's gross income amount and amount of dependents the employee has claimed on their W4 form.


3. Use tax software for employers that calculate the amount of taxes that should be withheld. Once you have entered in the specific information on each employee as well as the payroll amount and state in which the employee resides, the program will automatically determine the amount of taxes that should be withheld.


4. Be sure to deduct Social Security and Medicare tax as directed by the Federal Government. Paying into Social Security through tax deductions is mandatory and will ensure that the employee is able to collect these benefits later in life.


5. Have the tax information of all employees double checked by an attorney that specializes in the field of employment taxes prior to issuing the employee's W2s at the end of the year. It is easier to correct any mistakes prior to submitting the information to the IRS.