What is a tax bracket?
A tax bracket is a range of income taxed at a specific rate. The U.S. tax system is progressive, meaning higher earnings are taxed at higher rates.
For employers, understanding tax brackets is essential for payroll tax calculations. It ensures accurate withholding from employee paychecks, preventing under- or overpayment of taxes. Homebase payroll automatically accounts for tax brackets, making payroll tax compliance simple.
How tax brackets work
The IRS uses a tiered system where different portions of an individual’s income are taxed at different rates.
Here’s how it works:
- The first portion of an employee’s taxable income is taxed at the lowest rate.
- As income increases, only the earnings within each bracket are taxed at the corresponding rate.
- Higher-income earners don’t pay the top tax rate on their entire income—just on the amount within the highest bracket.
Why do employers need to know about tax brackets?
As an employer, you are responsible for ensuring that the correct amount of federal income tax is withheld from your employee's wages.
This means:
- IRS tax tables were used to determine the correct withholding amount.
- Staying up to date with changes to tax brackets (which may adjust annually due to inflation).
- Providing employees with accurate W-2 forms that reflect their total taxable wages and withholdings.
2024–2025 federal tax brackets for single filers
To give you a sense of how tax brackets apply, here are the 2024 federal income tax brackets for single filers:
- 10% on income up to $11,600
- 12% on income between $11,601 and $47,150
- 22% on income between $47,151 and $100,525
- 24% on income between $100,526 and $191,950
- 32% on income between $191,951 and $243,725
- 35% on income between $243,726 and $609,350
- 37% on income above $609,350
Employers should refer to IRS Publication 15-T for official withholding tables and guidance or utilize Homebase payroll to simplify payroll tax calculations.
Homebase payroll accurately calculates tax withholdings automatically based on tax brackets, ensuring compliance and minimizing your risk.
How tax brackets affect payroll withholding
When processing payroll, you need to calculate and withhold the correct amount of federal income tax based on:
- Employee earnings – Higher wages mean higher withholding based on tax brackets.
- W-4 withholding elections – Employees can adjust their withholding through IRS Form W-4.
- Pre-tax deductions – Contributions to retirement plans or health insurance may lower taxable income.
Common tax withholding mistakes employers make
Mismanaging tax brackets can lead to IRS penalties and frustrated employees. Here are some common mistakes to avoid:
- Underwithholding taxes, leaving employees with a surprise tax bill.
- Overwithholding taxes, unnecessarily reducing employees’ take-home pay.
- Failing to update tax tables, especially when IRS brackets change due to inflation.
How Homebase simplifies payroll tax calculations
Managing payroll taxes doesn’t have to be complicated. Homebase payroll makes it easy by:
- Automatically calculating and withholding the correct federal, state, and local taxes
- Keeping up with tax bracket updates so you don’t have to
- Generating accurate W-2 forms for employees at year-end
- Ensuring compliance with IRS tax laws
An automated payroll system like Homebase payroll helps ensure accurate withholding calculations, saving you time and reducing the risk of errors. Give it a try!
Sign up for Homebase today and simplify your payroll tax calculations with ease!