Identification

• Your employer is supposed to withhold federal income tax from your paychecks according to the Internal Revenue Service's instructions. The federal government also requires payroll tax withholding of Social Security and Medicare tax, also called FICA taxes, which the Federal Insurance Contributions Act authorizes the IRS to collect. An employer does not withhold federal income tax if you meet the exempt criteria shown on the W-4 form for the respective tax year.
  
  

Federal Income Tax

• To know the amount of federal income tax that should be withheld from your paychecks, obtain your filing status and allowances from lines 3 and 5, respectively, of your W-4. If you are new to your job and are unsure of how to fill out the form, read lines A to G and claim the allowances and filing status that relate to your situation. Include that information on lines 3 and 5 of the bottom portion of the form and submit it to your employer. If you qualify for exempt status, check line 7.
  
  To figure the actual withholding, obtain the IRS Circular E for the tax year in question from the IRS website. Your employer should also have a copy. Look for the tax table that matches your filing status, allowances, pay period and wages to get the withholding amount; for example, see page 38 of the 2011 Circular E.
  
  

FICA Calculations

• In 2011, calculate Social Security tax at 4.2 percent of your taxable wages, up to $106,800 for the year, and Medicare tax at 1.45 percent of all your taxable income. Taxable income means your wages after you subtract qualifying pretax deductions, such as a Section 125 plan, from your gross pay; this rule applies to federal income tax withholding as well. If you have no such deductions, all of your pay is subject to FICA taxes. Social Security and Medicare rates are subject to change yearly; you can get current rates from the Social Security Administration website or IRS Circular E.
  
  

Reporting

• Your employer is supposed to pay all of your federal withholding to the IRS and give you a W-2 form each year showing your wages paid and taxes withheld for the year. You use the W-2 to file your tax return with the IRS and, if necessary, your state and local taxation agency. Your employer is supposed to file the W-2 with the Social Security Administration -- which sends the data to the IRS -- and the respective state and local taxation agencies.