Federal income tax (FIT) withholding

Federal income tax (FIT) is withheld from employee earnings each payroll. Gusto calculates employees' federal income tax using the tax withholding information entered in Gusto and the current IRS tax tables—elections can be changed at any time in Gusto. 

FIT calculation factors

For an in-depth description of the tax calculations, check out IRS Publication 15A

Estimate federal income taxes with this easy-to-use IRS calculator—not yet updated for 2023

  1. Download the IRS' Excel Spreadsheet.
    • Heads up: The IRS hasn't updated the easy-to-use calculator/spreadsheet for 2023 yet, they currently recommend a more complicated estimator if you want to try that in the meantime. 
  2. Enter the details requested:
    • Pay frequency
    • Taxable wages (gross wages minus pre-tax deductions not subject to FIT)
    • The W-4 version that was filled out, and the elections on it
  3. Review the result—remember to factor in any unknowns that may not have been accounted for:
    • Pre-tax deductions not subject to FIT
    • Exemptions


Q: Why wasn't federal income tax withheld on a paycheck?

A: Sometimes the IRS calculates that $0 taxes need to be withheld from a paycheck—this most often happens when you're not earning enough in gross wages for taxes to be withheld.

Use the IRS withholding calculator above to help confirm the expected amount of federal income tax to withhold based on your personal tax settings. These include the factors listed at the top of this article.

Q: An employee's taxes were over or under withheld on a paycheck—what do they need to do?

A: State and federal tax withholding amounts get reconciled through personal tax returns at the end of the year. This means if taxes were over-withheld, employees may see larger tax refunds. Alternatively, if taxes were under-withheld, they may owe more at the end of the year. 

Employees can always update their W-4 elections  in Gusto to try to modify the amount(s) being withheld per paycheck—check with a CPA or accounting professional for explicit advice about what selections to make.