📝 Overview
Federal Income Tax (FIT) is withheld from your workers' paychecks each pay period based on their wages, filing status, and W-4 elections. This article explains how FIT is calculated and how to adjust a worker's withholding amount when needed.
🔑 What Is Federal Income Tax?
Federal Income Tax is levied by the IRS on an individual's taxable income, including wages, salaries, commissions, bonuses, and tips. Full-time and part-time W-2 employees are subject to FIT withholding.
📊 How FIT Is Calculated
The amount of FIT withheld from each paycheck is based on three factors:
Total wages for the pay period
Filing status (single, married, head of household, etc.)
W-4 elections, including personal exemptions and any additional withholding amounts the worker has requested
The withheld amount can also vary based on the worker's pay group (weekly, semi-monthly, etc.), since the IRS calculation accounts for the annualized equivalent of each pay period's wages.
💡 You and your workers can review IRS Publication 505 for detailed guidance on federal income tax withholding and estimated tax. Workers should consult their CPA or tax advisor for help completing their W-4 elections.
🔍 What If FIT Is Not Showing on a Paycheck?
If a worker is not seeing federal income tax withheld on a payroll run, this typically means their wages for that pay period did not meet the threshold required to trigger FIT withholding based on their W-4 settings. This is expected behavior and not an error.
🛠️ How to Adjust a Worker's FIT Withholding
Sometimes a worker will request a specific FIT withholding amount rather than relying on the standard W-4 calculation. The steps below walk through how to handle both scenarios: withholding more than the calculated amount and withholding less.
Finding the Current Withholding Amount
If you do not already know the worker's current calculated FIT withholding amount, follow these steps to find it before making any adjustments.
Create a test payroll using the worker's expected wages and current tax setup, but do not submit it.
On step 2 of the run payroll process, click View details to open the worker's draft pay stub.
Note the federal income tax withholding amount shown. Save this figure before proceeding.
Exit the payroll by clicking the X in the upper right corner.
Delete the test payroll by clicking the trash icon next to the pending payroll in your dashboard.
Setting a Higher Withholding Amount
If the worker's target withholding amount is more than the current calculated amount:
Calculate the difference between the target amount and the current calculated amount.
Target amount - current amount = differenceNavigate to the worker's Employee Profile and select Tax info.
In the Federal tax info section, enter the difference in the Extra withholding field.
Save your changes.
Setting a Lower Withholding Amount
If the worker's target withholding amount is less than the current calculated amount, contact DaySmart Support for additional assistance.
❓ Frequently Asked Questions (FAQs)
Find answers to common questions or additional details that may not be covered in the main instructions.
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Click the arrow to view frequently asked questions
Which workers are subject to FIT withholding?
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FIT withholding applies to full-time and part-time W-2 employees. It does not apply to 1099 independent contractors, who are responsible for paying their own income taxes directly to the IRS.
Why does the FIT amount change from paycheck to paycheck?
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FIT is recalculated each pay period based on the worker's wages for that period, their W-4 elections, and the pay group frequency. Variations in hours worked, commissions, bonuses, or other earnings will affect the calculated withholding amount.
A worker wants to update their W-4. Where do they do that?
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Workers can update their W-4 elections directly in their own profile, or you can update them in the worker's Employee Profile under Tax info. Workers should consult a CPA or tax advisor if they are unsure how to complete their W-4 selections.
Can a worker request $0 in FIT withholding?
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A worker can claim exempt from withholding on their W-4 if they meet the IRS eligibility criteria, which results in no FIT being withheld. If a worker is requesting a specific withholding amount that is lower than what the system calculates, contact DaySmart Support for assistance.
Where can I find more information about federal withholding requirements?
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Click the arrow to see the answer
IRS Publication 505 covers federal income tax withholding and estimated tax in detail. For help with W-4 form elections, workers should speak with their CPA or tax advisor.
You can access IRS Publication 505 at the link below.