Section 6.4
Income Tax
Withholding
Employee’s Withholding Allowance
Certificate (IRS W-4 form)
 Form on which employee states
marital status and number of
withholding allowances being
claimed.
 This information is used to determine
the amount of federal withholding
tax. This is done using one of two
methods…
1. The Wage Bracket Method
 Uses the tables found on p 231-232
 Look at the correct table:
 Weekly or Monthly earnings?
 Married or Single?
 Find the correct wage range along
the left columns.
 Cross-match to the correct # of
allowances along the top.
Examples: Wage Bracket Method
 Rachel Leach is single and claims 2
withholding allowances. Use the wage
bracket method to find her withholding
tax if her weekly gross earnings are
$308.10.
 Bob has monthly earnings of $2,439.78. He
is married and claims 4 withholding
allowances. Find his withholding tax
using the wage bracket method.
2. The Percentage Method
 Uses the table on p 233.
 Find the correct table.
 Weekly, Biweekly, Semimonthly, or Monthly?
 Married or Single?
 Find the withholding allowance for one person.
 Multiply by the # of allowances being claimed.
 Subtract that value from the gross earnings.
 Find the range (Married or Single?) that includes
that value.
 Subtract the ‘of excess over’ amount before you
multiply by the %, then add.
Percentage Method Examples
 Sadie is married and claims 3 withholding
allowances. Use the percentage method
to find her withholding tax in a week
when she has earnings of $1263.
 Howard has earnings of $5735 for the
month. He is married and claims 4
withholding allowances. Use the
percentage method to find his tax.
 Carol has weekly earnings of $2175, is
single, and claims 2 withholding
allowances. Use the percentage
method to find her withholding tax.
State Withholding Tax
 Uses the state’s tax rate… varies by state!
 Tax = state’s percent rate x gross earnings
 EX: An employee has gross earnings of
$3786 for the month. If her state has a
6.15% income tax rate, find the state
withholding tax.
NET PAY… after all the taxes!
 To find net pay, first find all the taxes:
 FICA
 Medicare
 Federal Withholding
 State Withholding
 Any others (like SDI)
 Then subtract ALL the taxes from the
gross earnings.
Net pay example
 Al has monthly gross earning of
$8762, is married, and claims 3
withholding allowance. His state
withholding is 3% and his union dues
are $58. Find his net pay using the
percentage method for federal
withholding.
Quarterly amount owed to IRS
 Remember: employee’s contributions for
Medicare and FICA are matched by the
employer. Usually paid quarterly…
 Payless Dry Cleaners withheld $461.90 in FICA
and $108.03 in Medicare Tax from employees.
How much must the employer send to the IRS?
 In one quarter, City Electronics has collected
$1953.82 in FICA, $456.75 in Medicare Tax, and
$3780.47 in Federal Withholding tax from its
employees. Find the total amount due to the
government by the employer.