How to Use the Circular E Withholding Tables

IRS Publication 15-T, Federal Income Tax Withholding Methods, provides the official tables and calculation methods employers use to determine how much federal income tax to withhold from employee paychecks. This guide, formerly known as “Circular E,” details the two primary methods for this calculation: the Wage Bracket Method and the Percentage Method. Its purpose is to ensure that employers can accurately compute and remit the correct amount of tax for each employee based on their individual circumstances.

Information Needed to Use the Tables

Before any tax calculation can occur, an employer must collect specific information from each employee using Form W-4, Employee’s Withholding Certificate. This form is the primary source of data for the withholding tables. Step 1 of the form establishes the employee’s filing status, such as Single or Married filing separately, Married filing jointly, or Head of Household. This status determines which column of the tax tables to use.

A significant part of the form involves adjustments for other income and deductions. Step 2 is used by employees who hold multiple jobs or whose spouse also works. This section helps to ensure that withholding is adequate to cover the combined income. Step 3 allows employees to account for tax credits they expect to claim for dependents, and the total amount from this step directly reduces the amount of tax withheld.

Step 4 of Form W-4 allows for other adjustments. Here, an employee can report other income not from jobs, such as interest or dividends, which would increase their withholding. Conversely, they can list other deductions they expect to take, which would lower their withholding. An employee can also request a specific additional amount to be withheld from each paycheck in this step.

Using the Wage Bracket Method

The Wage Bracket Method is a straightforward approach for determining employee tax withholding, detailed within Publication 15-T. The initial step is to select the correct table based on the employee’s pay period, such as weekly, biweekly, or monthly. The tables are also separated by filing status as indicated on the Form W-4.

Once the correct table is identified, the employer locates the row corresponding to the employee’s gross wages for that pay period. For example, if a biweekly paid employee earns $1,500, the employer would find the row labeled “At least $1,500 but less than $1,520.” The next action is to look across that row to find the column that matches the employee’s filing status and the information from Step 2 of their Form W-4.

The amount shown at the intersection of the wage row and the status column is the tentative withholding amount. This amount is then adjusted by any tax credits claimed for dependents in Step 3 of the Form W-4. The total credit amount for the year is divided by the number of pay periods and subtracted from the tentative withholding. The result is the final amount of federal income tax to withhold for that pay period.

Using the Percentage Method

The Percentage Method is an alternative calculation found in Publication 15-T and is frequently used by payroll processing software. This method requires a series of calculations based on worksheets in the publication rather than a simple table lookup. It is often necessary for employees whose wages exceed the amounts shown in the wage bracket tables or for those with more complex W-4 adjustments.

The first step involves adjusting the employee’s gross wages for the pay period. The employer consults a specific table in Publication 15-T to determine an adjustment amount based on the employee’s filing status and whether the box in Step 2 was checked. This amount is subtracted from the employee’s gross pay to arrive at an adjusted wage figure.

Next, the employer applies the appropriate tax rate from the percentage method tables. These tables show different tax rates for various income brackets based on filing status and pay period. The calculation involves subtracting a specific dollar amount from the adjusted wage and then multiplying the result by the applicable percentage. Finally, this calculated tax amount is reduced by any credits for dependents reported on the employee’s Form W-4 to determine the final withholding amount.

Calculating Social Security and Medicare Taxes

Separate from federal income tax, employers must also withhold and pay taxes under the Federal Insurance Contributions Act (FICA). These taxes fund Social Security and Medicare and are calculated independently from the methods in Publication 15-T. The calculation is a direct percentage of the employee’s taxable wages. For 2025, the employee tax rate for Social Security is 6.2%.

The Social Security tax has an annual wage base limit. For 2025, this limit is $176,100. This means that an employee’s wages are subject to the 6.2% Social Security tax only until their year-to-date earnings reach this threshold. Once an employee’s earnings exceed $176,100, no further Social Security tax is withheld for the remainder of the year.

The Medicare tax operates differently. The employee tax rate for Medicare is 1.45% of all taxable wages. Unlike Social Security, there is no wage base limit for Medicare tax. This means that all of an employee’s covered wages are subject to the 1.45% Medicare tax. Employers are responsible for withholding these amounts from each paycheck and remitting them along with their own matching employer portion of the taxes.

In addition to the standard Medicare tax, a 0.9% Additional Medicare Tax applies to higher earnings. Employers are required to begin withholding this tax on an employee’s wages that exceed $200,000 in a calendar year. This additional tax is paid only by the employee; there is no employer match.