Payroll and Timekeeping

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Payroll and Timekeeping

• Determining Federal Income Taxes Deductions

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Determining Federal Income Tax

• Current Payment Act of 1943
• Directed employers to withhold federal income
  tax from the earnings of their employees.
• Two methods
• Wage Bracket Method
• Percentage method of withholdings

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Determining Federal Income Tax

• Wage Bracket method
• uses the wage bracket tables provided by the IRS.
  
• tables are included in Pub 15 Circular E ,
  published by IRS
• Four factors are used in designing these tables
• Length of the payroll period
• Employee's gross earnings for the period
• Employee marital status
• Number of withholding allowances claimed by the
  employee

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Determining Federal Income Tax

• Wage Bracket method
• Form W-4 provides information about the
  employees marital status and number of
  withholding allowances

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Reading the Wage Bracket Tables

• Marital status Allowances Pay Period

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Reading the Wage Bracket Tables
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Determining Federal Income Tax

• Wage Bracket method example
• Donna Patterson is single and has zero
  allowances. She is on a weekly payroll period.
  She earned 95 per week. How much you should
  withheld for Federal Income tax? 12.46

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Other Systems for Determining Income Tax

• Percentage Method
• Occasionally an employee earns wages that are not
  shown on the wage-bracket tables. In these
  cases, the percentage method is used.
• Federal Income Tax withholding calculations
  include
• number of allowances for the period
• payroll period
• marital status
• gross earnings

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Other Systems for Determining Income Tax

• Percentage Method tables

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Income Tax Withholding

• Percentage method Example
• John Smith is married and lists two withholding
  allowances for the weekly pay period. His
  earnings were 1,410.40. How much should you
  withhold for Federal Income tax?

Step 1 - The first steps to computing his
withholdings, is to determine the amount of
earnings on which to compute withholding tax.
59.62 x 2 119.24
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Income Tax Withholding

• Step 2 Subtract total allowances (119.24) from
  total earnings (1,410.40) to get the amount
  (1,291.16) on which his withholding tax is
  computed for the week.

Step 3 Determine the amount of income tax to
withhold using the table Mr. Smith must pay
149.90 plus 25 of excess earnings over
1,245. (1291.161,245) x .25 149.90
161.44
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Discussion