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6-3 Percentage Method: –Occasionally an employee earns wages that are not shown on the wage-bracket tables. In these cases, the percentage method is used. –Federal Income Tax withholding calculations include: number of allowances for the period payroll period marital status gross earnings Using the Percentage Method

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-5 Percentage method Example: Henry Biddle is married and list two withholdings allowances for the weekly pay period. His earnings were \$ 1,410.40. How much should you withhold for Federal Income tax? Using the Percentage Method Step #1 - The first steps to computing his withholdings, is to determine the amount of earnings on which to compute withholding tax. \$59.62 x 2 = \$119.24

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-6 Step #2 –Subtract total allowances (\$119.24) from total earnings (\$1,410.40) to get the amount (\$1,291.16) on which his withholding tax is computed for the week. Using the Percentage Method Step #3 – Determine the amount of income tax to withhold: using the table Mr. Biddle must pay \$149.90 plus 25% of excess earnings over \$1,245. (\$1291.16–\$1,245) x.25 + \$149.90 = 161.44

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-7 The payroll register provides: – a summary of the hours worked, earnings, deductions, and net pay of all employees for a payroll period. –Beginning and ending dates for the payroll period –Information for each employee –Totals for the period Payroll Register

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-10 The first section of the payroll register shows: the name, marital status, number of withholding allowances, and the regular pay rate Payroll Register- Employee Information

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-12 Entering employees earnings for the period. –These amounts are transferred from the time cards to the earnings section of the payroll register. –Some workers such as independent contractors are not listed in the payroll register. Payroll Register - Earnings

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-13 Mandatory Deductions Social Security Medicare Income Tax withholdings State Income Tax withholding Garnishments Payroll Register – Deductions

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-14 Voluntary Deductions The amounts of voluntary deductions are obtained from the Employee Earnings Records. Union dues Health insurance 401 K retirement plan Simple IRA Stock options plan Payroll Register – Deductions

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-15 Net pay –The net pay is found by subtracting the employees total deductions from his/her total (gross) earnings. –The date and check number columns are left blank until the paychecks are prepared. Payroll Register – Net Pay

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-16 TOTALING AND PROVING THE PAYROLL REGISTER Step # 2 After individual entries are made, a single line is drawn across all money columns at the bottom of the form. Step # 1 After the information for all employees has been entered in the payroll register, it is necessary to total and prove the record.

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-17 TOTALING AND PROVING THE PAYROLL REGISTER Step # 4 Once totals are checked and the figures are entered in the payroll register, a double line is drawn under them. Step # 3 The amounts in each column is added to find the totals.

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-18 Steps to prove the payroll register: Add the total regular earnings. Add the total over time earnings. Add the totals of each deduction column. Subtract the total amount of Total Deductions from the Total Earnings Column Computation= Net Pay. Proving the Payroll Register

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-19 Accuracy checks in the Payroll: Be careful not to transpose numbers Add figures twice - once in each direction If subtracting, check the difference by using addition. Accuracy in Payroll