Manually Calculate Federal Tax Amounts

Document #: 3160 Product: CenterPoint Payroll

 

This document describes how to manually calculate Federal taxes. This can be used if you are curious as to how the taxes get calculated or would like assurance that Federal taxes are calculating accurately. We have included an example in italics within the document for a married employee with two exemptions.

The calculations steps below follow the rules outlined in the IRS Publication 15 (2011), (Circular E), Employer's Tax Guide. Publication 15-A does allow for alternative methods of calculating federal withholding to be used, but only if they are consistent with the percentage method in 15.

Calculation Steps:

  1. Multiply the employee's earnings per pay period by the number of pay periods in the year (i.e. 52=weekly; 26=bi-weekly) to calculate the annual gross wages.

$800 (weekly earnings) x 52 (pay periods in the year) = $41,600 (annual gross wages).

  1. Multiply the number of exemptions noted on the employee's W-4 by the annual withholding allowance.

    2 (exemptions) x $3,700 (2011 annual withholding allowance) = $7,400.

  2. Subtract the annual withholding allowance from the annual gross wages.$41,600 - $7,400 = $34,200 taxable earnings.
Note: If there are any pre-tax deductions for Federal withholding, reduce the taxable earnings by the amount of the annual pre-tax deductions to arrive at the final taxable earnings.
  1. Select File > Payroll Administration > Taxes. Using the appropriate Single or Married table, find the appropriate row for the adjusted annual wages calculated in Step 3. Document the Base Amt Plus, the Is Over and the Rate % from that row.
  2. Subtract the amount noted in the Is Over field from the adjusted annual income from Step 3.

    Using the married table, $34,200 (taxable earnings) - $24,900 (dollar amount from the table in the “Is Over” column) = $9,300.

  3. Multiply the adjusted annual income from Step 3 by the percentage found in Step 4. Then add the amount from the Base Amt Plus field, if any.

    $9,300 x 15% (rate from the same line in the table) = $1,395.

    $1,395 + $1,700 (base amt plus) = $3,095.

  4. Divide this amount by the number of pay periods in the year to calculate the amount of federal tax to withhold from each pay period.

    $3,095 divided by 52 (pay periods in the year) = $59.52.