Calculating Withholding Tax

AccountEdge calculates withholding tax, based on an employees estimated annual wage. For a given paycheck, the annual wage is 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. The table below is illustrative only and does not reflect current IRS rates.

If the amount of wages (after subtracting withholding allowances) is: Table 1. Typical Withholding Tax Table