Q:

How does the IRS generate income tax withholding tables each year?

A:

Quick Answer

The Internal Revenue Service generates the withholding tables by calculating the amount of money to withhold from an employee's pay in order to pay his federal income tax. The amount of pay, the pay period and the number of claimed exemptions are all factors that change the amount withheld.

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Full Answer

The IRS makes annual adjustments to the tax tables to accommodate the effects of inflation. The updated tables, typically released in October of the year prior to which they are applicable, are used to generate the updated withholding tables. Since federal income taxes are paid as the income is generated, the changes are made to prevent an employee from having too much or too little withheld from his pay.

The IRS uses the amount of pay and the pay period to estimate the annual income of an employee. The updated tax tables are then used to determine the federal tax on that income. The amount withheld per pay period is the estimated amount of an employee's federal tax divided by the number of annual pay periods. Since the filing status and the number of claimed exemptions changes the amount of federal tax, there are different withholding tables for each filing status. These tables each have different columns for the number of exemptions in order that the employer can withhold the correct amount.

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