Gross Wages

• To start, total your earnings for one pay period (called gross wages). This includes hourly wages or salary plus any other income like tips and commissions. Don't deduct anything yet, even things like your contributions to a 401(k) plan. However, you don't want to count employer-paid contributions to retirement plans or reimbursements for business expenses (such as a mileage allowance).
  
  

FICA/Medicare

• To compute federal FICA withholding tax (Social Security), multiply your gross wages by 6.2 percent. For Medicare tax, multiply gross wages by 1.45 percent. There is one exception to this procedure. If your year-to-date income reaches a yearly limit, no more FICA tax is withheld. The limit is tied to the Consumer Price Index, so it changes from year to year. You can look up the current year's limit in IRS Publication 15, Circular E (Employer Tax Guide), available at irs.gov. There is no income limit for withholding Medicare taxes.
  
  

Federal Income Tax

• To compute federal income tax withholding, first figure your taxable income. Subtract the amount of the withholding allowances you claimed on your Form W-4 plus any other tax-exempt deductions. For example, suppose you are paid weekly and have gross pay of $500 with two withholding allowances. In 2009, the amount of one withholding allowance for one week was $70.19. You would subtract $140.38 from $500, leaving 359.62. Next, subtract any other tax exempt items. If there are no other deductions (such as contributions to a retirement plan), this is your taxable income.
  
  Federal income tax withholding is calculated using a series of tax brackets. The higher your income, the greater the percentage of tax is withheld (up to a maximum of 35 percent as of 2009). In our example, in 2009 the first $138 of taxable income isn't taxed. From $138 to $200 the tax is 10 percent (a total of $6.20). For the amount over $200 (159.62) the rate is 15 percent ($23.94). Add the amounts for each tax bracket together to find the total ($6.20 plus $23.94 = $30.14). You can find the tax tables for the current year at irs.gov or in IRS Publication 15, Circular E.