Audience - ADP

[Pages:78]

Calculating FIT Tax Withholding

The purpose of this document is to provide the steps to calculate FIT tax withholding. The ProBusiness® Payroll system does an annualized calculation using a percentage method. When referring to the IRS tax table, you will want to use the annualized amount for the withholding allowances.

Steps:

| |Activity Description |

|1 |Annualize the EEs wages by multiplying the amount in the GRTXC column by the number of pay periods per the |

| |employee’s payroll cycle. |

| |Weekly – GRTXC * 52 pay periods |

| |Biweekly – GRTXC * 26 pay periods |

| |Semimonthly – GRTXC * 24 pay periods |

| |Monthly – GRTXC * 12 pay periods |

|2 |Determine the amount exempt from withholding: |

| |Find out the allowances the EE is claiming by either viewing the check in question and clicking on the |

| |taxation button or view the amount of exemption claimed in the Employee Master Exempts field under the Federal|

| |area. |

| |Multiply the number of allowances by the current withholding allowance amount of $3650.00 for 2009. |

|3 |Subtract the amount calculated in step 2 from step 1. This will now be the taxable wages used for the rest of|

| |the calculation. |

|4 |Determine the marital status of the employee by either viewing the check in question and clicking on the |

| |taxation button, or view the amount of exemption claimed in the Employee Master Status field under the Federal|

| |area. |

|5 |Refer to the Tables for Percentage Method of Withholding using Table 7 for Annual Payroll Period, page 6 from |

| |the IRS Publication 15T link below. |

| | |

| |[pic] |

| 6 |Using the wage amount calculated in Step 3, select the wage range under the appropriate filing status of the |

| |employee. |

| | |

| 7 |Subtract the excess amount, amount listed under the “of excess over---” column, from the wage amount |

| |calculated in step 3. Then from the “The amount of income tax to withhold is:” column, apply the percentage |

| |to the wages and then add any flat dollar amount that is applicable. This amount is the annual tax amount for|

| |the employee. To find the per payroll amount, you would divide by the number of payroll periods as outlined |

| |in step 1. |

| 8 |Example: |

| |Mary has $1,500.00 in wages for the current bi-weekly pay period. She is married claiming 3 exemptions. The|

| |tax calculation steps are as follows: |

| |Annualize the wages – $1,500.00 * 26 pay periods = $39,000.00 |

| |Calculate exemption amount – $3,650.00 annual allowance * 3 allowances = $10,950.00 |

| |$39,000.00 Annual wages – $10,950.00 allowance = $28,050.00 taxable wages |

| |Using Table 7 side (b) for married the she falls into the $24,450.00 - $75,650.00 range. The annual tax calc |

| |is shown below: |

| |(($28,050.00 taxable wages - $24,450.00 excess) * 15%) + $870.00 |

| |($3,600.00 * 15%) + $870.00 |

| |$540.00 + $870.00 = $1410.00 = annualized tax amount |

| |$1410.00/26 = $54.23 = current bi weekly withholding amount. |

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