All wages, salaries, cash gifts from employers, business income, tips, gambling income, bonuses, and unemployment benefits are subject to a federal income tax.įor each payroll, federal income tax is calculated based on the answers provided on the W-4 and year to date income, which is then referenced to the tax tables in IRS Publication 15-T. The federal income tax is a tax on annual earnings for individuals, businesses, and other legal entities. This calculation process can be complex, so PaycheckCity’s free calculators can do it for you! To learn how to manually calculate federal income tax, use these step-by-step instructions and examples.
The more taxable income you have, the higher tax rate you are subject to.