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1. Compute the employee's gross pay for the pay period (wages, tips, salary, commissions, etc).

2. Subtract any "pre-tax deductions" (med ins premiums, retirement, etc). This is the employee's "pre-tax net pay".

3. Divide $3800 (the amount one W-4 allowance is worth annually) by the number of pay periods in the tax year (e.g 26 for bi-weekly). Multiply this by the number of allowances claimed on the W-4 and subtract it from the pre-tax net pay to determine the "pay subject to withholding".

4. Taxes are computed "piecewise"; dollar amounts up to A are taxed at X%, and then dollar amounts between A and B are taxed at Y%, so total tax for B dollars is A*X + (B-A)*Y. Here is the table of rates for income earned in 2012 on a daily basis by a person filing as Single:

    More Than   But Less Than   W/H Base   W/H Pct
       0.00        8.30           0.00      0%
       8.30       41.70           0.00     10%
      41.70      144.20           3.34     15%
     144.20      337.70          18.72     25%
     337.70      695.40          67.10     28%
     695.40     1501.90         167.26     33%
    1501.90                     433.41     35%
   

1. Compute the employee's gross pay for the pay period (wages, tips, salary, commissions, etc).

2. Subtract any "pre-tax deductions" (med ins premiums, retirement, etc). This is the employee's "pre-tax net pay".

3. Divide the amount one W-4 allowance is worth annually (for 2012, that's $3800) by the number of pay periods in the tax year (e.g 26 for bi-weekly). Multiply this by the number of allowances claimed on the W-4 and subtract it from the pre-tax net pay to determine the "pay subject to withholding".

4. Taxes are computed "piecewise"; dollar amounts up to A are taxed at X%, and then dollar amounts between A and B are taxed at Y%, so total tax for B dollars is A*X + (B-A)*Y. Here is the table of rates for income earned in 2012 on a daily basis by a person filing as Single:

    More Than   But Less Than   W/H Base   W/H Pct
       0.00        8.30           0.00      0%
       8.30       41.70           0.00     10%
      41.70      144.20           3.34     15%
     144.20      337.70          18.72     25%
     337.70      695.40          67.10     28%
     695.40     1501.90         167.26     33%
    1501.90                     433.41     35%
   

1. Compute the employee's gross pay for the pay period (wages, tips, salary, commissions, etc).

2. Subtract any "pre-tax deductions" (med ins premiums, retirement, etc). This is the employee's "pre-tax net pay".

3. Divide $3800 (the amount one W-4 allowance is worth annually) by the number of pay periods in the tax year (e.g 26 for bi-weekly). Multiply this by the number of allowances claimed on the W-4 and subtract it from the pre-tax net pay to determine the "pay subject to withholding".

4. Taxes are computed "piecewise"; dollar amounts up to A are taxed at X%, and then dollar amounts between A and B are taxed at Y% so total taxes for A+B dollars are AX+BY. Here is the table of rates for income earned in 2012 on a daily basis by a person filing as Single:

    More Than   But Less Than   W/H Base   W/H Pct
       0.00        8.30           0.00      0%
       8.30       41.70           0.00     10%
      41.70      144.20           3.34     15%
     144.20      337.70          18.72     25%
     337.70      695.40          67.10     28%
     695.40     1501.90         167.26     33%
    1501.90                     433.41     35%
   

$2500 / 10 = $250 // you're in the 25% bracket
$144.20 * 10 = $1442.00 //amount for which tax is included in the tax base
$18.72 * 10 = $187.20 //W/H base for $1442.00
$2500 - $1442.00 = $1058.00 //Amount subject to 25% tax
$1058.00 * .25 = $264.50 //Addtl tax for 25% bracket
$264.50 + 187.20 = $451.70 //Total Fed W/H

1. Compute the employee's gross pay for the pay period (wages, tips, salary, commissions, etc).

2. Subtract any "pre-tax deductions" (med ins premiums, retirement, etc). This is the employee's "pre-tax net pay".

3. Divide $3800 (the amount one W-4 allowance is worth annually) by the number of pay periods in the tax year (e.g 26 for bi-weekly). Multiply this by the number of allowances claimed on the W-4 and subtract it from the pre-tax net pay to determine the "pay subject to withholding".

4. Taxes are computed "piecewise"; dollar amounts up to A are taxed at X%, and then dollar amounts between A and B are taxed at Y%, so total tax for B dollars is A*X + (B-A)*Y. Here is the table of rates for income earned in 2012 on a daily basis by a person filing as Single:

    More Than   But Less Than   W/H Base   W/H Pct
       0.00        8.30           0.00      0%
       8.30       41.70           0.00     10%
      41.70      144.20           3.34     15%
     144.20      337.70          18.72     25%
     337.70      695.40          67.10     28%
     695.40     1501.90         167.26     33%
    1501.90                     433.41     35%
   

$2500 / 10 = $250 // you're in the 25% bracket
$144.20 * 10 = $1442.00 //amount taxed at lower rates incl. in W/H base
$18.72 * 10 = $187.20 //W/H base for $1442.00
$2500 - $1442.00 = $1058.00 //Amount subject to 25% tax
$1058.00 * .25 = $264.50 //Addtl tax for 25% bracket
$264.50 + 187.20 = $451.70 //Total Fed W/H

So, with zero allowances, your employer should be taking $451.70 out of your paycheck for federal withholding. Now, that doesn't include PA state taxes of 3.07% (on $2500 that's $76.75), plus other state and federal taxes like SS (4.2% on your gross income), Medicare/Medicaid (1.45% on your entire gross income), and SUTA (.8% on the first $8000). But, you also don't get a refund on those when you fill out the 1040 (except if you claim deductions against state income tax, and in an exceptional case which requires you to have two jobs in one year, thus doubling up on SS and SUTA taxes beyond their wage bases).

So, with zero allowances, your employer should be taking $451.70 out of your paycheck for federal withholding. Now, that doesn't include PA state taxes of 3.07% (on $2500 that's $76.75), plus other state and federal taxes like SS (4.2% on your gross income up to 106k), Medicare/Medicaid (1.45% on your entire gross income), and SUTA (.8% on the first $8000). But, you also don't get a refund on those when you fill out the 1040 (except if you claim deductions against state income tax, and in an exceptional case which requires you to have two jobs in one year, thus doubling up on SS and SUTA taxes beyond their wage bases).