Wage Bracket vs. Percentage Method: The Two Ways Your Federal Withholding Gets Computed

If you run payroll by hand and one employee's raise pushes them past roughly $100,000 a year, the IRS lookup table you have used all year quietly stops being legal for them. Nothing on the page warns you. The table just ends, and from that paycheck on you are supposed to switch to a different method — a formula instead of a lookup — or you will under-withhold and owe the difference yourself.

Both methods live in the same IRS publication, both start from the same Form W-4, and both usually produce similar numbers. But they work differently, they apply in different situations, and the one your payroll software uses is almost certainly not the one the paper tables teach. Here is how each works, when each applies, and which one fits your situation.

The Two Methods in 60 Seconds​

Every withholding calculation starts with IRS Publication 15-T, Federal Income Tax Withholding Methods, which the IRS reissues each year with inflation-adjusted figures. It offers two paths to the same answer:

If you use payroll software, you are already using the percentage method — the IRS publishes a dedicated set of percentage-method tables for automated payroll systems and expects software to use them. The wage bracket method survives for employers who still figure withholding by hand.

The Wage Bracket Method: Withholding by Lookup​

The wage bracket method is the simplest way to withhold: no math, just a lookup. Publication 15-T prints one table per pay period — weekly, biweekly, semimonthly, monthly, and the rest — and within each table the rows are wage ranges and the columns are filing statuses.

To withhold for a biweekly employee who is single and earned $3,000 this period, you open the biweekly table, find the row reading "at least $2,990 but less than $3,000," move across to the single column, and read off the dollar amount. That number is the federal income tax to withhold. Done.

Which table: the W-4 vintage matters​

The 2020 Form W-4 redesign eliminated allowances entirely, replacing them with a multiple-jobs checkbox (Step 2), dependent credits (Step 3), and other-income and deduction adjustments (Step 4). Because old and new forms carry different inputs, Publication 15-T prints two completely separate sets of wage bracket tables:

• Tables for Forms W-4 from 2020 or later, which work off filing status plus the Step 2–4 entries.
• Tables for Forms W-4 from 2019 or earlier, which work off filing status plus a number of allowances.

Using the wrong vintage is one of the most common manual-payroll errors. An employee hired in 2023 has a new-form W-4 by definition; looking them up in the allowances table produces a wrong number with no error message. When in doubt, check which form the employee actually signed — employers were never required to collect new W-4s from existing staff, so a long-tenured crew can easily hold a mix of both.

The two hard limits​

The wage bracket tables cover only a bounded universe, and the publication says so explicitly:

1. About $100,000 in annual wages. The tables simply stop. If taxable wages exceed the last bracket of the table for that pay period and filing status, you must use the percentage method instead.
2. Up to 10 allowances — and only for 2019-or-earlier W-4s. An employee who claimed more than 10 allowances on an old form cannot be looked up either.

Both limits bite mid-year more often than at hire. A bonus-heavy quarter, a mid-year raise, or an employee who picks up overtime can push annualized wages past the table's edge several months into a year of correct lookups. The fix is not to squeeze the employee into the top row — that under-withholds — but to switch that employee to the percentage method for the affected paychecks.

The Percentage Method: Withholding by Formula​

The percentage method trades the lookup for a short worksheet. Conceptually it does what the tables do, but with exact arithmetic instead of pre-rounded rows:

1. Annualize the paycheck. Multiply this period's taxable wages by the number of pay periods in the year (26 for biweekly, 12 for monthly, and so on).
2. Adjust for the W-4. Apply the filing-status standard deduction amount, halve the brackets if the Step 2 multiple-jobs box is checked, subtract dependent credits from Step 3, and fold in the Step 4 adjustments for other income, deductions, and extra withholding.
3. Look up the rate bracket. Find the adjusted annual wage in the percentage-method rate table for that filing status, which gives a base tax amount plus a marginal rate on the excess over the bracket floor.
4. Compute and de-annualize. Tentative annual withholding equals the base plus the rate times the excess; divide by the number of pay periods to get this paycheck's withholding.

A worked example makes it concrete. Suppose the worksheet leaves an adjusted annual wage of $69,400 for a single filer. In the rate table that falls in the $57,900–$113,200 bracket, which carries a base tax of $5,800 plus 22 percent of the amount over $57,900:

• Excess over the floor: $69,400 − $57,900 = $11,500
• Marginal tax: 22% × $11,500 = $2,530
• Tentative annual withholding: $5,800 + $2,530 = $8,330
• Biweekly withholding: $8,330 ÷ 26 = $320.38

Publication 15-T prints three sets of percentage-method tables: one for automated payroll systems, one for manual systems using 2020-or-later W-4s, and one for manual systems using 2019-or-earlier W-4s. Software vendors implement the automated set, which is why every mainstream payroll product handles any income level, any allowance count, and every Step 2–4 combination without special-casing.

Why the Two Methods Give Slightly Different Answers​

If you look up an employee in the wage bracket table and run the same employee through the percentage formula, the two answers will often differ by a few dollars. That is expected, not an error.

The wage bracket table pre-computes withholding for the midpoint of each wage row and rounds the result, so everyone in the same $10 or $20 band gets the same number. The percentage method computes on the exact wage. Both are correct in the IRS's eyes — the publication blesses either method wherever both apply — but the difference has one practical consequence: if you withhold for some employees by table and others by formula, similar paychecks can show slightly different withholding, and employees will ask why. Using one method for the whole workforce keeps every pay stub consistent and every explanation short.

When You Must Switch Methods​

You may choose either method wherever both apply, but three situations force the percentage method:

• The employee earns too much for the tables. Past roughly $100,000 in annualized wages, the wage bracket method is unavailable. Watch for this after raises, bonuses, and overtime streaks — it is a per-paycheck test on annualized wages, not a once-a-year classification.
• The old-form W-4 claims more than 10 allowances. Rare today, but the tables cap out at 10 and the percentage method has no cap.
• You run payroll through software. Automated systems are expected to use the percentage-method tables for automated payroll systems. In practice every payroll product already does.

Two more events deserve a re-check even when the method stays the same. A mid-year W-4 change — a new hire's first form, a marriage, a dependent — can move an employee across brackets or flip the Step 2 halving on or off, so re-run the worksheet from the first paycheck the new form covers. And every January, the tables themselves change: new standard deduction amounts, new bracket thresholds, and occasionally legislative updates (the 2026 edition of Publication 15-T reflects recent tax legislation alongside the usual inflation adjustments). Withholding figured from last year's publication is wrong from the first pay run of the year.

What Manual-Payroll Employers Get Wrong​

Most withholding errors are boring process failures, not math failures. The short list, in rough order of frequency:

1. Using last year's Publication 15-T. The bracket thresholds and deduction amounts move every year. Bookmark the current edition and replace the PDF each January before the first pay run.
2. Staying in the wage bracket tables past the cap. The top row of the table is not a catch-all. Wages above it need the percentage method, full stop.
3. Mixing up the W-4 vintages. New-form employees in the allowances tables, or old-form employees in the new tables, both produce confident-looking wrong numbers. Sort your W-4s by vintage once and label which table set each employee belongs to.
4. Ignoring the Step 2 checkbox. When an employee holds two jobs or files jointly with a working spouse, the checked box halves the standard deduction and bracket widths for that job. Skipping it under-withholds, sometimes dramatically.
5. Withholding bonuses like regular pay — or vice versa. Supplemental wages (bonuses, commissions, severance, payouts of accrued leave) follow their own rules: you may withhold at the flat 22 percent supplemental rate, or aggregate the payment with regular wages and withhold on the combined amount. Supplemental wages above $1 million in a year must be withheld at 37 percent. Picking the wrong lane here is the fastest way to surprise an employee at filing time.

Any of these can leave an employee under-withheld, and under-withholding discovered at year-end means amended figures, corrected Forms W-2, and an unhappy conversation. Withheld tax is also trust-fund money — once withheld from the paycheck, it belongs to the IRS and must be deposited on schedule — so getting the computation right is only half the job; depositing it on time is the other half.

Booking Withholding on Your Books​

Whichever method computes the number, the bookkeeping is the same: gross pay is your expense, every withheld amount is a liability you owe to someone else, and the difference is the cash that leaves your account. Recording the three pieces separately — rather than booking only the net paycheck — is what lets you reconcile your payroll liability accounts to your quarterly Form 941 and spot a missed deposit before the IRS does.

A biweekly payroll for one employee, with $6,000 in gross wages and $640.76 in federal withholding computed by the percentage method, looks like this in Beancount:

2026-10-24 * "Biweekly payroll - gross wages and withholding"
  Expenses:Payroll:Salaries                  6,000.00 USD
  Liabilities:Payroll:Federal-Withholding     -640.76 USD
  Liabilities:Payroll:Social-Security         -372.00 USD
  Liabilities:Payroll:Medicare                 -87.00 USD
  Assets:Checking                           -4,900.24 USD

When you remit the withheld federal tax, the liability clears against cash:

2026-10-30 * "Remit withheld federal income tax via EFTPS"
  Liabilities:Payroll:Federal-Withholding     640.76 USD
  Assets:Checking                            -640.76 USD

Keep one liability sub-account per tax type — federal withholding, Social Security, Medicare, state — and your month-end reconciliation becomes a balance check: each account should hold exactly what you have withheld but not yet remitted. If you track payroll in plain-text books, the Beancount documentation covers account structure in more depth, and Fava turns these postings into the trend charts that show your true labor cost per period.

Which Method Should You Use?​

For most small employers the decision tree is short:

• You run payroll by hand, everyone earns under the cap, and W-4s are simple. The wage bracket method is fine. It is faster, the tables do the rounding for you, and the IRS designed them for exactly this case.
• Anyone earns over roughly $100,000, anyone holds an old W-4 with more than 10 allowances, or W-4s carry Step 2–4 entries you keep fumbling. Use the percentage method for those employees — or for everyone, for consistency.
• You use payroll software. You are already on the percentage method. Your job is making sure the software has the current year's tables and the correct W-4 data, not doing the arithmetic.

Either way, the highest-value step is the same and takes five minutes: download the current year's Publication 15-T, confirm which table set each employee belongs to, and check that nobody's annualized wages have drifted past the wage bracket tables' edge since you last looked.