Calculate the federal income tax to withhold from the wages or salaries of each employee using (a) percentage method (b) wage bracket method.
Explanation of Solution
Payroll Accounting: The process of payroll accounting includes the computation and payment of earnings of the employees and the payroll taxes to be paid to state and federal authorities as per applicable laws.
Calculate the federal income tax to withhold from the wages or salaries of each employee using (a) percentage method (b) wage bracket method.
Employee Name | Marital status | No. of withholding allowance | Gross wages or salary in $ | Amount to be Withheld in $ | |
Percentage Method | Wage bracket Method | ||||
Employee CA | S | 2 | 675 Weekly | (1) 49.67 | 50.00 |
Employee FP | S | 1 | 1,960 Weekly | (2) 324.41 | 324.41 |
Employee FS | M | 6 | 1,775 Biweekly | (3) 37.34 | 37.00 |
Employee CW | M | 4 | 2,480 Semi-monthly | (4) 141.00 | 140.00 |
Employee HM | M | 9 | 5,380 Monthly | (5) 130.5 | 130.00 |
(Table 1)
Note:
- When employees’ wages is higher than the last amount listed on the wage-bracket table, the percentage method must be used for the employee. For Employee FP the wages is higher than the amount provided in the wage-bracket table. As a result the amount to be withheld is computed using percentage method.
Working Note 1: Calculate the amount to be withheld for Employee CA.
Particulars | Amount in $ | Amount in $ |
Gross wages | 675 | |
Less: Total Allowance for one withholding allowance | 159.60 | |
Excess wages | 515.40 | |
The tax from tax table: | ||
Excess wages | 515.40 | |
Less: Amount of excess over for excess wages | 254.00 | |
Total excess over amount | 261.40 | |
Multiply: Percentage of tax withheld for excess over | 12% | |
31.37 | ||
Add: Amount of income tax withheld for 12% | 18.30 | |
Federal Income Tax to be withheld | 49.67 |
(Table 2)
Working Note 2: Calculate the amount to be withheld for Employee FP.
Particulars | Amount in $ | Amount in $ |
Gross wages | 1,960.00 | |
Less: Total Allowance for one withholding allowance | 79.80 | |
Excess wages | 1,880.20 | |
The tax from tax table: | ||
Excess wages | 1,880.20 | |
Less: Amount of excess over for excess wages | 1,658.00 | |
Total excess over amount | 222.00 | |
Multiply: Percentage of tax withheld for excess over | 24% | |
53.33 | ||
Add: Amount of income tax withheld for 24% | 271.08 | |
Federal Income Tax to be withheld | 324.41 |
(Table 3)
Working Note 3: Calculate the amount to be withheld for Employee FS.
Particulars | Amount in $ | Amount in $ |
Gross wages | 1,775.00 | |
Less: Total Allowance for one withholding allowance | 957.60 | |
Excess wages | 817.40 | |
The tax from tax table: | ||
Excess wages | 817.40 | |
Less: Amount of excess over for excess wages | 444.00 | |
Total excess over amount | 373.40 | |
Multiply: Percentage of tax withheld for excess over | 10% | |
37.34 | ||
Add: Amount of income tax withheld for 10% | 0.00 | |
Federal Income Tax to be withheld | 37.34 |
(Table 4)
Working Note 4: Calculate the amount to be withheld for CW.
Particulars | Amount in $ | Amount in $ |
Gross wages | 2,480.00 | |
Less: Total Allowance for one withholding allowance | 691.60 | |
Excess wages | 1,788.40 | |
The tax from tax table: | ||
Excess wages | 1,788.40 | |
Less: Amount of excess over for excess wages | 1,275.00 | |
Total excess over amount | 513.40 | |
Multiply: Percentage of tax withheld for excess over | 12% | |
61.61 | ||
Add: Amount of income tax withheld for 12% | 79.40 | |
Federal Income Tax to be withheld | 141.01 |
(Table 5)
Working Note 5: Calculate the amount to be withheld for HM.
Particulars | Amount in $ | Amount in $ |
Gross wages | 5,380.00 | |
Less: Total Allowance for one withholding allowance | 3,112.20 | |
Excess wages | 2,267.80 | |
The tax from tax table: | ||
Excess wages | 2,267.80 | |
Less: Amount of excess over for excess wages | 963.00 | |
Total excess over amount | 1,304.80 | |
Multiply: Percentage of tax withheld for excess over | 10% | |
130.48 | ||
Add: Amount of income tax withheld for 10% | 00.00 | |
Federal Income Tax to be withheld | 130.48 |
(Table 6)
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Chapter 4 Solutions
EBK PAYROLL ACCT.,2019 ED.
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