Chapter 4, Problem 3PB

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 RS	S	2	1,040 Weekly	(1) 100.02	101.00
Employee FX	S	1	2,190 Weekly	(2) 379.61	379.61
Employee FH	M	6	1,890 Biweekly	(3) 48.84	49.00
Employee CP	M	4	2,315 Semi-monthly	(4) 121.21	121.00
Employee HR	M	9	4,200 Monthly	(5) 12.48	14.00

(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 FX 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 RZ.

Particulars	Amount in $	Amount in $
Gross wages	1,040.00
Less: Total Allowance for one withholding allowance $\left(2\times \$79.80\right)$	159.60
Excess wages	880.40
The tax from  tax  table:
Excess wages		880.40
Less: Amount  of excess over for excess wages		815.00
Total excess over amount		65.40
Multiply: Percentage of tax withheld for excess over		22%
		14.40
Add: Amount of income tax withheld for 22%		85.62
Federal Income Tax to be withheld		100.02

(Table 2)

Working Note 2: Calculate the amount to be withheld for Employee FX.

Particulars	Amount in $	Amount in $
Gross wages	2,190.00
Less: Total Allowance for one withholding allowance $\left(1\times \$79.80\right)$	79.80
Excess wages	2,110.20
The tax from  tax  table:
Excess wages		2,110.20
Less: Amount  of excess over for excess wages		1,658.00
Total excess over amount		452.20
Multiply: Percentage of tax withheld for excess over		24%
		108.53
Add: Amount of income tax withheld for 24%		271.08
Federal Income Tax to be withheld		379.61

(Table 3)

Working Note 3: Calculate the amount to be withheld for Employee FH.

Particulars	Amount in $	Amount in $
Gross wages	1,890.00
Less: Total Allowance for one withholding allowance $\left(6\times \$159.60\right)$	957.60
Excess wages	932.40
The tax from  tax  table:
Excess wages		932.40
Less: Amount  of excess over for excess wages		444.00
Total excess over amount		488.40
Multiply: Percentage of tax withheld for excess over		10%
		48.84
Add: Amount of income tax withheld for 10%		0.00
Federal Income Tax to be withheld		48.84

(Table 4)

Working Note 4: Calculate the amount to be withheld for CP.

Particulars	Amount in $	Amount in $
Gross wages	2,315.00
Less: Total Allowance for one withholding allowance $\left(4\times \$172.90\right)$	691.60
Excess wages	1,623.40
The tax from  tax  table:
Excess wages		1,623.40
Less: Amount  of excess over for excess wages		1,275.00
Total excess over amount		348.40
Multiply: Percentage of tax withheld for excess over		12%
		41.81
Add: Amount of income tax withheld for 12%		79.40
Federal Income Tax to be withheld		121.21

(Table 5)

Working Note 5: Calculate the amount to be withheld for HR.

Particulars	Amount in $	Amount in $
Gross wages	4,200.00
Less: Total Allowance for one withholding allowance $\left(9\times \$345.80\right)$	3,112.20
Excess wages	1,087.80
The tax from  tax  table:
Excess wages		1,087.80
Less: Amount  of excess over for excess wages		963.00
Total excess over amount		124.80
Multiply: Percentage of tax withheld for excess over		10%
		12.48
Add: Amount of income tax withheld for 10%		00.00
Federal Income Tax to be withheld		12.48

(Table 6)