Whenever you pay wages or other compensation to an employee, you can assume that the IRS will expect you to collect a portion of the employee's federal income tax on the payment through withholding.

• Calculating the withholding amount: once you've determined that a given payment is subject to withholding, calculating the amount to withhold is fairly straightforward. Although the law provides specific rules for calculating that amount, the IRS has reduced the rules to simple tax tables that you can use in most cases.
• Withholding exemptions: because an employee's tax liability differs depending on his or her marital status, number of dependents, and other factors, each of your employees must fill out a W-4 form that accounts for such differences by allowing the employee to claim one or more withholding exemptions.