Final answer:
The IRS publication used to determine federal tax withholding is called Publication 15-E. This guide helps employers withhold taxes from their employees' paychecks according to the IRS guidelines and assist in fulfilling their tax obligations throughout the year. This process is reconciled annually when individuals file their tax forms such as the 1040EZ or 1040.
Step-by-step explanation:
The IRS publication used to determine federal tax withholding is called the Publication 15-E. This publication is often referred to as the Employer's Tax Guide, and it provides detailed instructions on how employers should withhold taxes from their employees' paychecks. The process of tax withholding is crucial as it ensures that individual income taxes are collected throughout the year rather than at a single point in time. Employers use the guidelines laid out in Publication 15-E to calculate the amount of federal income tax to withhold based on earnings and other factors, such as marital status and allowances.
It is also important to note that the payroll withholding system simplifies tax collection by automating the process, reducing the burden both on the employer and the employee. This automated withholding process assists in fulfilling the tax obligations preemptively so that employees do not have to pay a lump sum amount at the end of the tax year. The withheld taxes are then reconciled with the actual tax liability when individuals file their tax returns, using forms such as the 1040EZ or the standard 1040 tax form. The 1040 forms are critical instruments of fiscal policy and are based on the U.S. tax code. Understanding the Publication 15-E is essential for anyone involved in payroll processing or dealing with federal tax withholdings.