Is she married or single?
You can use the withholding tax tables to determine the federal withholding. You do not have to withhold the federal tax. You need to however withhold the FICA and Medicare taxes.
Here is a link that will discuss this in details-
http://www.irs.gov/publications/p926/ar02.html#en_US_publink100086752
Regarding payment of taxes - you will make these payments along with your federal tax liability. You could either cover this liability by having additional tax amount withheld from your paycheck or by making quarterly estimated taxes.
http://www.irs.gov/publications/p926/ar02.html#en_US_publink100086758
Let me know if you have any question.
Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.
Certified Public Accountant (CPA)
CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..