The Internal Revenue Service publishes the tax guidelines for employers every year. These guidelines show how much you should withhold from your employees' checks and what the employer contributions should be. The IRS also determines the amount to reduce taxable wages for each allowance your employee claims. When you calculate your employee payroll, you must reduce each employee's taxable wages by the appropriate amount for the allowances claimed. Calculating the right amount is essential to accurate payroll taxes.

Review the employee's W-4 to identify how many allowances he or she claimed.

Review the current year's Employer's Tax Guide from the IRS to identify the rate per allowance that you should deduct from the employee's taxable pay. For example, in 2012 you would subtract $73.08 for each allowance for a weekly payroll period.

Multiply the total number of allowances by the rate per allowance according to the current year's tax publication. As an example, in 2012, if the employee claimed three allowances, and you pay on a weekly basis, you would reduce the employee's taxable wages by $146.16 for the period.

Tip

The rate per allowance can vary with each new tax year. Verify the current rate with the newest IRS tax publication for employers.