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  • The formula for federal income tax withheld is based on tax brackets, your income level, your tax filing status and the number of exemptions you claimed on your W-4 form.

    W-4 Forms

    The W-4 is a federally required form that all employees fill out to indicate how many exemptions--or reductions to taxable income--the company needs to account for when calculating federal income tax withholding.from their paychecks.

    Exemptions

    For 2009 and 2010, each exemption you claim decreases your annual income that's subject to federal income tax withholding by $3,650.

    Tax Filing Status

    Whether you file a single or joint return determines which federal income tax withholding table you will use. If you file a joint return--the typical filing status for married couples--the amount withheld will generally be lower than if you are single.

    Tax Brackets

    Each year the IRS sets the federal income tax withholding brackets by adjusting them for inflation. Your tax bracket will determine the percentage of your paycheck that will be withheld for taxes. The system is progressive, so as your income rises, a higher percentage of it will be withheld for federal income taxes.

    Changing the Number of Exemptions

    You can change your federal income tax withholding by changing the number of exemptions you claim on your W-4. If you increase the number of exemptions you claim, you will have less withheld from your paycheck, but you will owe more at tax time. You also can increase your tax withholding by requesting an additional dollar amount be withheld on top of normal withholding.

    Source:

    IRS: 2010 Federal Withholding Tables

    The Cato Institute: The Evolution of Federal Income Tax Withholding

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