AccountEdge calculates withholding tax, based on an employees estimated annual wage. For a given paycheck, the annual wage to determined by the gross wage of a paycheck, multiplied by the number of pay periods for the employee. The result is the value used to determine the payroll withholding tax bracket. So, if the paycheck of a weekly-paid employee is $1000, the software will calculate withholding taxes assuming an annual wage of $52,000 (52 weeks per year * $1,000 = $52,000). If next week the paycheck wages are $2000, the software will calculate the withholding taxes assuming an annual salary of $104,000 (52 weeks per year * $2,000 = $104,000).
When the withholding tax is determined by a Base tax plus a Percentage of wage over the Base, taxes are calculated by determining the annual wage (see above), then determining the withholding tax bracket:
( ( ( ( Annual Wage - 'of Wages Over' ) * '+ Percentage' ) + '= Base Tax' ) / pay periods )
As an example, suppose a weekly-paid employee is paid an annual salary of $95,000.00. The weekly gross wage is $1826.93. The weekly withholding is (based on the example table below):
( ( ( ( $95,000.00 - $91,600.00 ) * 28% ) + $18,193.75 ) / 52 )
( ( ( $3,400 * 28% ) + $18,193.75 ) / 52 )
( ( $952 + $18,193.75 ) / 52 )
( 368.19 )
Suppose this weekly-paid employee earns only $1,000 for a given week. The weekly withholding is (based on the example table below):
( ( ( ( $52,000 - $39,150.00 ) * 25% ) + $5,081.25 ) / 52 )
( ( ( $12,850.00 * 25% ) + $5,081.25 ) / 52 )
( ( $3,212.5 + $5,081.25 ) / 52 )
( 159.50 )
The above calculation represents a specific table (example shown below). There are different tables for different states and localities.
If the amount of wages (after subtracting withholding allowances) is: Table 1. Typical Withholding Tax Table
Wages Over | Not to Exceed | = Base Tax | + Percent | of Wages Over |
$0.00 | $2,250.00 | $0.00 | 0% | $0.00 |
$2,250.00 | $11,325.00 | $0.00 | 10% | $2,250.00 |
$11,325.00 | $39,150.00 | $907.50 | 15% | $11,325.00 |
$39,150.00 | $91,600.00 | $5,081.25 | 25% | $39,150.00 |
$91,600.00 | $188,600.00 | $18,193.75 | 28% | $91,600.00 |
$188,600.00 | $407,350.00 | $45,353.75 | 33% | $188,600.00 |
$407,350.00 | $409,000.00 | $117,541.25 | 35% | $407,350.00 |