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Example 4-2

To compute the tax using the percentage method, follow the steps illustrated below.

Step 1

Determine the amount of gross wages earned, marital status, number of allowances, and frequency of pay. Note: If the wage ends in a fractional dollar amount, the wage may be rounded to the nearest dollar. However, in this text, exact wages are used.

Wilson Goodman, single, claims two allowances and earns $915.60 semimonthly.

Step 2

Multiply the number of allowances claimed by the amount of one allowance for the appropriate payroll period, as shown in the Table of Allowance Values in Figure 4.6.

Table of Allowance Values for semimonthly payroll period shows $175.00.

Multiply $175.00 2 = $350.00

Step 3

Subtract the amount for the number of allowances claimed from the employees gross pay to find the excess of wages over allowances claimed.

Gross pay	$915.60
Less: Allowances	350.00
Excess wages	$565.60

Step 4

Determine the withholding tax on the excess of wages over allowances claimed by referring to the appropriate Percentage Method Withholding Table.

Compute tax from Tax Table 3(a), page T-3. ($565.60 $563.00 = $2.60 12% = $0.31 + $40.50) = $40.81

Example 4-3

To use the wage-bracket method, follow the steps illustrated below.

Step 1
Select the withholding table that applies to the employee's marital status and pay period.		Adrienne Huff is married and claims 3 allowances. She is paid weekly at a rate of $815.
Step 2
Locate the wage bracket (the first two columns of the table) in which the employee's gross wages fall.		Locate the appropriate wage bracket (see Figure 4.7):
		At least $810 but less than $821
Step 3
Follow the line for the wage bracket across to the right to the column showing the appropriate number of allowances. Withhold this amount of tax.		Move across the line to the column showing 3 allowances.
		The tax to withhold is $35.

Use (a) the percentage method and (b) the wage-bracket method to compute the federal income taxes to withhold from the wages or salaries of each employee. Enter all amounts as positive numbers. Round your calculations and final answers to the nearest cent.

Click here to access the Table of Allowance Values.

Click here to access the Percentage Method Tables.

Click here to access the Wage-Bracket Method Tables.

				Amount to Be Withheld
Employee	Marital Status	No. of Withholding Allowances	Gross Wage or Salary	Percentage Method	Wage-Bracket Method
Corn, A.	S	2	$675 weekly	$	$
Fogge, P.	S	1	1,960 weekly		Must use percentage method
Felps, S.	M	6	1,775 biweekly
Carson, W.	M	4	2,480 semimonthly
Helm, M.	M	9	5,380 monthly		Must use percentage method

Feedback

a. Use Percentage Method Tables to calculate federal income taxes withheld using marital status and number of withholding allowances. Note: Multiply No. of withholding allowances by the appropriate allowance amount using Table of Allowance Values. b. Use Wage-Bracket Tables. At this point check your work by comparing parts a & b; these amounts should be very similar.