Calculating Federal Income Tax

If you are responsible for payroll in your business, you’ve probably had an employee ask you, “Why didn’t federal taxes come out of this paycheck?” or "Why do I owe more taxes at the end of the year?"

Federal income tax withholding can be very confusing, even for experienced business owners and HR managers. The rules aren’t new, but the way withholding works—especially since the redesigned W-4—can feel very different from what people expect.

In this article, we’re going to break down how the federal tax tables actually work when payroll calculates withholding. We’ll walk through what payroll systems look at, how the W-4 affects the math, and why withholding doesn’t always match what employees think should happen. By the end, you should feel much more confident explaining to your employees what is going on behind the scenes. Let's get started.

Key Takeaways From This Article

• Federal tax tables are used to calculate federal income tax withholding only, not state income tax or FICA.

• Payroll uses IRS tables to estimate annual taxes based on each paycheck, even though employees are paid weekly or bi-weekly.

• The W-4 form plays a major role in how much federal tax is withheld, especially when dependents are entered.

• Federal tax withholding is an estimate, not a final tax bill, and it can change even if pay stays the same.

• Employees can adjust their withholding by updating their W-4, including filing status or adding extra withholding.

What is Federal Income Tax?

Federal income tax is one part of the payroll taxes every employer must withhold from their employees' paychecks.  Federal income tax is calculated using IRS tax tables and the information an employee provides on their W-4, such as filing status, dependents, and any extra withholding. Federal income tax helps fund the day-to-day operations of the U.S. government and the programs and services people rely on every day, like national defense, transportation and infrastructure, public education programs, healthcare programs, disaster relief, and the operation of federal agencies.

How is Federal Income Tax Calculated?

Federal income tax is not a flat percentage taken from every paycheck. Instead, payroll follows a step-by-step process set by the IRS to estimate how much tax an employee may owe over the course of the year. Each pay period, the system looks at an employee’s earnings, applies their W-4 information, and uses IRS tax tables to calculate the appropriate amount of federal income tax to withhold.

What are the Tax Tables?

When we talk about “tax tables” in payroll, we’re referring to IRS tables that tell payroll systems how much federal income tax to withhold from a paycheck. These tables are published by the IRS each year in Publication 15-T.

Note, these tax tables apply to federal income tax only. They do not calculate:

• Social Security tax

• Medicare tax

• State income tax

• State programs like paid family and medical leave

Those taxes are calculated separately using different rules and rates. Federal income tax is the only piece that relies on these IRS tax tables.

How Payroll Calculates Federal Tax Withholding

Here’s the simplified version of what happens when payroll runs:

• Payroll looks at the employee’s gross pay for the pay period.

• It accounts for any pre-tax deductions, like retirement contributions or health insurance.

• It applies the employee’s W-4 information.

• It references the IRS tax tables for that pay frequency.

• It calculates how much federal income tax to withhold for that paycheck.

Even though employees are paid weekly, bi-weekly, or semi-monthly, the IRS tables are built to annualize those wages behind the scenes.

How Does the W-4 Impact This?

Recent changes to the Form W-4 changed how federal income tax withholding works, and this is where a lot of confusion comes from. The current W-4 no longer uses allowances. Instead, it focuses on:

• filing status

• dependents

• additional income

• extra withholding

When an employee enters dependents on the W-4, the system reduces their federal withholding to account for expected tax credits (the Child Tax Credit in 2026 is $2,200). In effect, the IRS allows that credit to be spread throughout the year instead of waiting until tax filing time. In theory, this means less withholding during the year and a smaller refund—or no refund—at year's end.

In practice, many employees still prefer to receive a refund, which means they may need to adjust their W-4 accordingly to not claim dependents - and use the Child Tax Credit at tax time.

Real-World Payroll Example

Let’s take a look at an example.

Jane is paid weekly and earns $680 in gross wages for the week. On her W-4, she has selected "married filing jointly" and has elected to have an extra $15 withheld each paycheck.

Payroll looks at the IRS weekly tax table and finds the wage range that includes $680. According to the table, someone who is "married filing jointly" in that range would have approximately $6 withheld for federal income tax.

That $6 represents the standard withholding based on her filing status and wages.

Next, payroll adds the extra $15 withholding Jane requested.

$6.42 from the tax table (prorated based on the exact wage)+$15 additional withholding =
equals $21.42 withheld for federal income tax for that pay period.

What happens if Jane switches her W-4?

Now let’s say Jane updates her W-4 and switches her filing status to "single" while keeping the extra $15 withholding.

Looking at the same weekly wage, the IRS tax table shows a much higher withholding amount for someone filing as single.

In that case, payroll calculates $40.09 from the tax table + $15 additional withholding = a total of $55.09 withheld for federal income tax.

Same pay. Same hours. Very different withholding based upon the W-4.

Why Federal Withholding Can Change Even if Wages Don't

Employers may wonder, “My employee’s hours didn’t change. Why did their taxes?”

There are several common reasons:

• the employee updated their W-4 to change their filing status

• the employee updated their W-4 to add/remove dependents

• a bonus or irregular paycheck affected annualized wages

• pre-tax deductions started or stopped

• pay frequency changed

• additional withholding was added or removed

Because withholding is an estimate, small changes can create noticeable differences on a paycheck.

Why Payroll Withholdings Aren't a Final Tax Bill

One last important point to understand is that payroll withholding is not a final calculation of what someone owes in federal income tax. Instead, it’s an estimate designed to spread an employee’s expected tax responsibility across the year based on their pay, W-4 information, and IRS tax tables.

The actual amount of federal income tax owed is calculated using a progressive tax system, meaning different portions of income are taxed at different rates as income increases. Payroll withholding attempts to mirror this system throughout the year, but it cannot account for every individual factor that may apply at tax time. Because of this, the total amount withheld may not match the final tax owed when a return is filed. That’s why some employees receive a refund, some owe a small balance, and others break even at tax time. 

FAQs on Federal Income Tax

What should employees do if they are worried about owing taxes at the end of the year?

Employees who are concerned about owing federal income tax should review their W-4 and make adjustments that better reflect their situation. This may include removing dependents, changing filing status, or adding an extra dollar amount to be withheld each paycheck. Payroll can explain how the system calculates withholding, but employees should consult a tax professional for personalized guidance on what changes make sense for their tax situation.

Why would my employee have no federal income tax withheld at all in a pay period?

This usually comes down to how the employee completed their W-4 and how much they earned during that pay period. If an employee claims dependents, selects a filing status that lowers withholding, or earns below certain thresholds, the IRS tax tables may result in little or no federal income tax being withheld. This can also happen if the employee has pre-tax deductions that reduce their taxable wages. In these cases, payroll is still calculating withholding correctly based on IRS rules—the outcome just happens to be zero for that check.

Can an employer change an employee's W-4?

No. Employers are required to calculate federal income tax withholding strictly based on the employee’s W-4. Even if an employee asks for help or wants taxes adjusted, employers cannot change filing status, add or remove dependents, or modify withholding amounts on the employee’s behalf. The only thing an employer can do is explain how withholding works and direct the employee to update their own W-4 if they want a change.

Why does a bonus or overtime check change federal withholding so much?

Federal income tax withholding is calculated by annualizing wages. When an employee receives a bonus, commission, or unusually large overtime check, the payroll system temporarily assumes that level of pay could continue throughout the year. That can push the estimated annual income into a higher tax range for that pay period, which increases the amount withheld on that check. Future paychecks usually return to normal withholding once wages stabilize.

Conclusion

Federal income tax withholding can feel confusing because it’s based on estimates and employee-provided information. But once you understand how the tax tables work and how the W-4 feeds into the calculation, it starts to make a lot more sense.

If you find yourself explaining this often, you’re not alone. We hear these questions every day, and education is one of the best tools employers have to reduce confusion and build trust around payroll.

Written: January 2026

Written by: Jon Portanova