Chapter 4, Problem 3PA

To determine

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 $\left(2\times \$79.80\right)$	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 $\left(1\times \$79.80\right)$	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 $\left(6\times \$159.60\right)$	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 $\left(4\times \$172.90\right)$	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 $\left(9\times \$345.80\right)$	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)