How to Calculate Withholding Tax: A Simple Payroll Guide for Small Business

By Thrive | Bookkeeping

Apr 29

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This publication is designed to provide employers with general guidance regarding Colorado wage withholding requirements. Additional information can be found in the statutes, regulations, forms, and guidance listed to the right. Nothing in this publication modifies or is intended to modify the requirements of Colorado’s statutes and regulations. Employers are encouraged to consult their tax advisors for guidance regarding specific situations. Every employer must prepare a W-2 for each employee to report the Colorado income taxes withheld from each employee’s pay. The employer must provide copies of the W-2 both to the employee and to the Department no later than January 31st of the following year.

How Much Tax Should You Have Withheld?

The amount of income tax you contribute from each paycheck depends on several factors, including total annual earnings and your filing status.

All income tax deducted and withheld by an employer from the wages of an employee is considered to be payment of Colorado income tax by the employee. Every employer who is required to withhold Colorado income tax must apply for and maintain an active Colorado wage withholding account. Employers may apply for an account online at or by preparing and submitting a Colorado Sales Tax and Withholding Account Application , available online at Colorado wage withholding requirements apply to anyone who has control of the payment of wages or is the officer, agent, or employee of the person having control of the payment of wages. Every employer making payment of Colorado wages is subject to Colorado wage withholding requirements. In general, Colorado wages are any wages that are either paid to an employee who is a Colorado resident or paid to any nonresident employee for services performed in Colorado. Any employer that is subject to Colorado wage withholding requirements must register with the Colorado Department of Revenue.

Social Security Withholding on Wages​

Social Security taxes began in 1937, at a modest rate of 2%. Medicare hospital insurance taxes didn’t kick in until 1966, at a rate of 0.7%.

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Usually, you must have Medicare and Social Security withholdings on each paycheck. This is true even if you have nothing withheld for federal, state, and local income taxes. Employers generally must withhold federal income tax from employees’ wages. Before 1989, the tax rate for self-employed people was less than the combined tax rate on employers and employees. The IRS recently announced that it will be cracking down on employers who don’t collect enough money in payroll taxes. Employers who are not required to make payment via EFT can file returns and make payments electronically online at

Credits & Deductions

Most personal state programs available in January; release dates vary by state. Enrolled Agents do not provide legal representation; signed Power of Attorney required.


It’s also a good idea to review your withholding whenever there have been changes in tax law, which has occurred a few times since late 2017. Line balance must be paid down to zero by February 15 each year. Year-round access may require an Emerald Savings® account. By authorizing H&R Block to e-file your tax return, or by taking the completed return to file, you are accepting the return and are obligated to pay all fees when due. If you earn at least a specified amount for at least 40 quarters, you can get Social Security benefits when you retire. Each employer withholds 6.2% of your gross income for Social Security up to income of $132,900 for 2019.

Local Income Tax Withholding

It is a About Federal Income Taxes Withheld On Wages of 1.45% on your earnings, and employers typically have to withhold an extra 0.9% on money you earn over $200,000. Here’s a breakdown of the taxes that might come out of your paycheck.

  • In addition to IRS Form W‑4, an employee may elect to complete a Colorado Employee Withholding Certificate .
  • If not, you may end up owing money to the IRS come tax time.
  • Every employer must prepare a W-2 for each employee to report the Colorado income taxes withheld from each employee’s pay.
  • Unlike Social Security and Medicare taxes, federal income taxes do not go to one specific program.
  • That’s why if you go from being an employee of someone else to being self-employed your payroll tax liability will double.
  • The aggregate method is used when your employer issues your bonus with your regular salary payment and uses the total amount to calculate the amount of withholding.

Completing it is largely a matter of simply answering some questions. The form will provide you with the correct amount to be withheld from your pay based on your responses.

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