• Section: US Payroll
• Last updated: May 21, 2019, 5:11 p.m.

## Calculating Withholding Tax

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 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 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 (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