Federal Tax Calculation Example for Different Pay Periods

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Examples of how to handle Federal Tax Calculations with different pay period frequencies.

Resolution

Katherine Banks has a Federal Filing Status of Married and claims one Exemption. She has no tax-sheltered Deductions. The following pay transactions are included in the pay run:

A Biweekly Hourly Pay Code for $600
A Biweekly Bonus Pay Code for $201.94
A Monthly Commission Pay Code for $214.80

This example uses the Payroll Tax Update for March 2001.

1. All wages are annualized, based on the pay period frequency.

$600 * 26 = $15,600
$201.94 * 26 = $5,250.44
$214.80 * 12 = $2,577.60
Total annualized wages: $23,428.04

2. Subtract the Exemption amount.

$23,428.04 - $2,900 = $20,528.04
This is the amount applied to the Tax tables.

3. Subtract according to the Tax tables then multiply by the Tax Rate.

$20,528.04 - $6,450 = $14,078.04 * 15% = $2,111.71 Total Taxes

4. Calculate the withholding for each pay frequency.

Biweekly - Divide the total annualized amount for the frequency by the total annualized wages.
($15,600 + $5,250.44) / $23,428.04 = .8899779
Multiply by the total Taxes then divide by the pay period frequency.
.8899779 * $2,111.71 = $1,879.37 / 26 = $72.28

Monthly - Divide the total annualized amount for the frequency by the total annualized wages.
$2,577.60 / $23,428.04 = .110022
Multiply by the total Taxes then divide by the pay period frequency.
.110022 * $2,111.71 = $232.33 / 12 = $19.36

5. Add together the federal withholding for each frequency.
$72.28 + $19.36 = $91.64

This article was TechKnowledge Document ID: 22213
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Article ID: 852017 - Last Review: 03/28/2016 22:31:00 - Revision: 2.0

Microsoft Dynamics GP 2010

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