2024 PPF BOOK CHAPTER 3.pdf
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Paycheck Fundamentals Chapter 3 Look at any paycheck, and you will notice that the gross amount of pay does Payroll is the not equal the net pay amount (the amount of a paych...
Paycheck Fundamentals Chapter 3 Look at any paycheck, and you will notice that the gross amount of pay does Payroll is the not equal the net pay amount (the amount of a paycheck or a direct deposit process used to or paycard deposit). That’s because certain amounts are deducted from an pay employees employee’s gross pay. These deductions include amounts for benefit plans and accurately and on taxes. The paycheck amount is called net pay, or take‑home pay. This chapter time. discusses how to handle some of the deductions and additions that are made to gross pay in order to calculate net pay. 3.1 Withholding Federal Taxes As you learned in Chapter 1, gross earnings include regular wages plus additional earnings, such as tips, shift premiums, paid time off, bonuses, and overtime pay. After calculating an employee’s gross earnings, you then determine the amount to withhold for federal, state, and local taxes. Let us first concentrate on the basics of withholding federal taxes—federal income tax (FIT), social security tax, and Medicare tax. 3.1.1 Taxable Wages IRC §61 defines taxable wages as "all compensation an employee receives that is not specifically excluded from taxable income by law." This means anything provided by the employer to the employee is taxable compensation, unless a law specifically excludes it from taxation. Because of this requirement, fringe benefits (discussed in Chapter 4.1) are taxable or partially taxable in many cases. 3.1.2 Wages are Taxable When Paid Wages become taxable when they are paid, not when they are earned. Thus, salary for hours worked during the last week of December 2023 but paid in January 2024 is taxable in 2024. Constructive Receipt Under the principle of constructive receipt, an employee is considered to have been paid wages when the wages have been made available to the employee without substantial limitation or restriction. When the wages are made available to the employee, the employer must withhold federal income tax, social security tax, and Medicare tax. Paycheck Fundamentals 3-1 Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) Chapter 3 For example, assume that December 30 is payday at your firm. An employee takes December 30 and 31, 2024, as vacation days and does not pick up her paycheck until January 6, 2025. Since the wages were available on December 30, they are considered constructively received on that date and would be taxable in 2024. Overpayments/Repayments When an employee is overpaid and the repayment occurs in the same calendar year, the repayment requested is the employee’s net overpayment. The employer can claim a refund from the IRS for the federal income, social security, and Medicare taxes withheld from the employee’s pay and employer’s social security and Medicare taxes. The overpayment and repayment can be netted together for reporting on Form W‑2. When an employee is overpaid and the repayment occurs in a calendar year subsequent to when the payment was made in error, the repayment requested is the employee’s gross overpayment less social security and Medicare taxes. The employer can claim a refund from the IRS for the employee’s withheld social security and Medicare taxes and the employer’s social security and Medicare taxes. The overpayment and repayment cannot be netted together for reporting on Form W‑2. The employee will deduct the repayment on the subsequent year’s federal income tax return to obtain a refund of federal income tax. This example illustrates the considerations involved when an employee repays income he received in the same calendar year as an overpayment. A company hired an employee on April 5, 2024, at a salary of $3,000 per month. The employee also received a sign‑on bonus of $1,000 that he was required to repay if the employee left the company Âwithin one year of being hired. When the employee resigned on ÂNovember 29, 2024, the employee repaid the net sign‑on bonus of $703.50 to the company. Since the employee received the bonus and Ârepaid it in the same year (2024), the company will reduce the Âemployee’s taxable income and social security and Medicare wages, as well as withheld federal income, social security, and Medicare taxes. 3-2 Payroll Practice Fundamentals Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) On the Chapter 3 ÂEmployee’s 2024 2024 2024 Net 2024 Payments Repayment Payments Form W‑2 Federal Income $25,000.00 $1,000.00 $24,000.00 $24,000.00 Taxable Wages Social Security $25,000.00 $1,000.00 $24,000.00 $24,000.00 Wages Medicare Wages $25,000.00 $1,000.00 $24,000.00 $24,000.00 Federal Income $4,480.00 $220.00 $4,260.00 $4,260.00 Tax Withheld Social Security $1,550.00 $62.00 $1,488.00 $1,488.00 Tax Withheld Medicare Tax $362.50 $14.50 $348.00 $348.00 Withheld Net Pay $18,607.50 $703.50 $17,904.00 The company filed corrections for the payments by filing a third quarter Form 941-X in the fourth quarter of 2024. The company also recovered the employer’s share of social security and Medicare taxes using Form 941‑X. If the repayment had been for an amount overpaid in the same quarter as the correction, no Form 941‑X would have been required. Tips If an employee receives and reports to his or her employer $20.00 or more in tips in a calendar month, federal income, social security, and Medicare taxes must be withheld for tip income as well as cash wages. Employers must also pay the employer’s portion of the social security and Medicare taxes and pay federal unemployment tax on the tip amount. Tips are considered supplemental wages by the IRS. Federal income tax withholding from tips can be calculated at the optional flat rate of 22%, if conditions are met, or the tips can be added to the employee’s wages when calculating federal income tax withholding (aggregate method). Even though tips are defined by the IRS as supplemental wages, for income tax purposes an employer may chose to treat tips as Âregular wages. Paycheck Fundamentals 3-3 Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) Chapter 3 3.1.3 Factors Affecting Withholding The amount of The amount of federal income tax withholding from an employee’s taxable federal income tax wages depends on a number of factors: withheld from an The employee’s filing status and withholding circumstances indicated employee’s wages on Form W‑4 (discussed in Chapter 1) depends on several Pay frequency (weekly, biweekly, semimonthly, etc.) factors. Whether the wages are regular or supplemental Any pretax deductions The basis for calculation of withholding is the employer’s pay frequency or payroll period. It is possible for an employer to have one or several payroll periods, including weekly, biweekly, semimonthly, monthly, quarterly, semiannual, annual, or daily. The withholding method chosen by the employer is then applied to wages earned during the payroll period to determine the amount to withhold. Federal law does not regulate pay frequency, which is an area left to individual states. Nearly all states regulate in some way an employer’s timing of wage payments including the minimum pay frequency period (e.g., biweekly) and the time that may elapse after a period ends and the employee must be paid (lag time). 3.1.4 Withholding Methods The two most Withholding on regular wages is calculated by using one of several different common procedures methods that are acceptable to the IRS. The two most common procedures for calculating are the wage bracket method and the percentage method. For supplemental withholding on wages, an aggregate method or, if conditions apply, an optional flat tax rate of regular wages are 22% can be used, and under some circumstances a mandatory 37% rate must the wage bracket be used. method and the percentage method. Publication 15‑T, Federal Income Tax Withholding Methods, enables Âemployers to figure income tax withholding under the percentage method and wage bracket method tables using Forms W‑4 for 2020 and later as well as Forms W‑4 prior to 2020. Publication 15‑T for 2024 has five sets of withholding tables and corresponding withholding computation worksheets: 1. Percentage Method tables for automated payroll systems and withholding on periodic payments of pensions and annuities (applies to both Forms W‑4 and W‑4P from 2020 or later and Forms W‑4 and W‑4P from 2019 or earlier) 3-4 Payroll Practice Fundamentals Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) 2. Wage Bracket Method for manual payroll systems and a 2020 Chapter 3 Form W‑4 or later 3. Wage Bracket Method for manual payroll systems with Forms W‑4 from 2019 or earlier (also applies to periodic payments of pensions or annuities with a 2021 or earlier Form W‑4P) 4. Percentage Method for manual payroll systems and a 2020 Form W‑4 or later 5. Percentage Method for manual payroll systems and a Form W‑4 from 2019 or earlier (also applies to periodic payments of pensions or annuities with a 2021 or earlier Form W‑4P) Publication 15‑T contains the full complement of tables needed to Âcompute federal income tax withholding regardless of the year of an employee’s Form W‑4. Publication 15‑T is set out in full in Appendix A. Wage Bracket Method When calculating withholding manually, the quickest and easiest method is to use the wage bracket tables from Publication 15‑T (found in the Appendix starting at page A-209). Worksheets 2 and 3 and their associated tables are used to calculate federal income tax withholding using this method, depending on whether the employee’s current Form W‑4 was completed in 2020 or later, or prior to 2020, respectively. For example, an employee has a 2024 Form W‑4, claims a filing status of single/married filing separately and does not complete Steps 2, 3, or 4. The employee is paid weekly wages of $1,450. Using the wage bracket tables associated with Worksheet 2 in Publication 15‑T, find the table for weekly employees. Looking in the Adjusted Wage Amount column, find the line for wages of at least $1,445 but less than $1,455. In the column for single employees or married employees filing separately go to the amount in the Standard Withholding column (the employee did not complete Step 2 so the other column does not apply). The amount of federal income tax to be withheld is $162 per week. Paycheck Fundamentals 3-5 Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Chapter 3 2. Wage Bracket Method Tables the Wage Bracket Method, use the worksheet below and the Wage Bracket Method tables that follow to figure fed- eral income tax withholding. for Manual Payroll Systems These Wage Bracket Method tables cover a limited With Forms W-4 From 2020 or amount of annual wages (generally, less than $100,000). If you can't use the Wage Bracket Method tables because Later taxable wages exceed the amount from the last bracket of the table (based on filing status and pay period), use the Percentage Method tables in section 4. If you compute payroll manually, your employee has sub- mitted a Form W-4 for 2020 or later, and you prefer to use Worksheet 2. Employer’s Withholding Worksheet for Wage Bracket Method Tables for Manual Payroll Systems With Forms W-4 From 2020 or Later Keep for Your Records Table 5 Monthly Semimonthly Biweekly Weekly Daily 12 24 26 52 260 Step 1. Adjust the employee’s wage amount 1a Enter the employee's total taxable wages this payroll period............................. 1a $ 1b Enter the number of pay periods you have per year (see Table 5)......................... 1b 1c Enter the amount from Step 4(a) of the employee's Form W-4........................... 1c $ 1d Divide the amount on line 1c by the number of pay periods on line 1b...................... 1d $ 1e Add lines 1a and 1d.......................................................... 1e $ 1f Enter the amount from Step 4(b) of the employee's Form W-4........................... 1f $ 1g Divide the amount on line 1f by the number of pay periods on line 1b...................... 1g $ 1h Subtract line 1g from line 1e. If zero or less, enter -0-. This is the Adjusted Wage Amount...... 1h $ Step 2. Figure the Tentative Withholding Amount 2a Use the amount on line 1h to look up the tentative amount to withhold in the appropriate Wage Bracket Method table in this section for your pay frequency, given the employee's filing status and whether the employee has checked the box in Step 2 of Form W-4. This is the Tentative Withholding Amount........................................................ 2a $ Step 3. Account for tax credits Page 15 of 70 3a Fileid: Enter … tions/p15t/2024/a/xml/cycle05/source the amount from Step 3 of the employee’s Form W-4............................. 11:51 3a $ - 12-Dec-2023 3b Divide the amount on line 3a by the number of pay periods on line 1b...................... 3b $ 3c Subtract The type and rule above prints line 3b from on all line including proofs 2a. If zero ordepartmental less, enter -0-.reproduction............proofs....... MUST.......be...removed..... 3cbefore $ printing. Step 4. Figure the final amount to withhold 4a Enter the additional amount to withhold from Step 4(c) of the employee’s Form W-4........... 4a $ 4b Add lines 3c and 4a. This is the amount to withhold from the employee’s wages this pay period................................................................ 4b $ 2024 Wage Bracket Method Tables for Manual Payroll Systems with Forms W-4 From 2020 or Later WEEKLY Payroll Period If the Adjusted Wage Married Filing Jointly Head of Household Single or Married Filing Separately Amount (line 1h) is Form W-4, Step 2, Form W-4, Step 2, Form W-4, Step 2, Standard Checkbox Standard Checkbox Standard Checkbox withholding withholding withholding withholding withholding withholding But less At least than The Tentative Withholding Amount is: $1,425 $1,435 $95 $158 $115 $209 $158 $243 $1,435 $1,445 $96 $160 $116 $212 $160 $245 $1,445 $1,455 $98 $162 $117 $214 $162 $247 $1,455 $1,465 $99 $164 $118 $217 $164 $250 $1,465 $1,475 $100 $166 $119 $219 $166 $252 12$1,475 $1,485 $101 $169 $121 $221 $169 15-T (2024) $255 Publication $1,485 $1,495 $102 $171 $122 $224 $171 $257 $1,495 $1,505 $104 $173 $123 $226 $173 $259 $1,505 $1,515 $105 $175 $124 $229 $175 $262 $1,515 $1,525 $106 $177 $125 $231 $177 $264 $1,525 $1,535 $107 $180 $127 $233 $180 $267 $1,535 $1,545 $108 $182 $128 $236 $182 $269 $1,545 $1,555 $110 $184 $129 $238 $184 $271 $1,555 $1,565 $111 $186 $130 $241 $186 $274 $1,565 $1,575 $112 $188 $131 $243 $188 $276 $1,575 $1,585 $113 $191 $133 $245 $191 $279 $1,585 $1,595 $114 $193 $134 $248 $193 $281 $1,595 $1,605 $116 $195 $135 $250 $195 $283 $1,605 $1,615 $117 $197 $136 $253 $197 $286 $1,615 $1,625 $118 $199 $137 $255 $199 $288 $1,625 $1,635 $119 $202 $139 $257 $202 $291 $1,635 $1,645 $120 $204 $140 $260 $204 $293 $1,645 $1,655 $122 $206 $143 $262 $206 $295 $1,655 $1,665 $123 $208 $145 $265 $208 $298 $1,665 $1,675 $124 $210 $147 $267 $210 $300 $1,675 $1,685 $125 $213 $149 $269 $213 $303 $1,685 $1,695 $126 $215 $151 $272 $215 $305 $1,695 $1,705 $128 $217 $154 $274 $217 $307 $1,705 $1,715 $129 $219 $156 $277 $219 $310 $1,715 $1,725 $130 $221 $158 $279 $221 $312 $1,725 $1,735 $131 $224 $160 $281 $224 $315 $1,735 $1,745 $132 $226 $162 $284 $226 $317 $1,745 $1,755 $134 $228 $165 $286 $228 $319 $1,755 $1,765 $135 $230 $167 $289 $230 $322 $1,765 $1,775 $136 $232 $169 $291 $232 $324 $1,775 $1,785 $137 $235 $171 $293 $235 $327 $1,785 $1,795 $138 $237 $173 $296 $237 $329 $1,795 $1,805 $140 $239 $176 $298 $239 $331 $1,805 $1,815 $141 $241 $178 $301 $241 $334 $1,815 $1,825 $142 $243 $180 $303 $243 $336 $1,825 $1,835 $143 $246 $182 $305 $246 $339 $1,835 $1,845 $144 $248 $184 $308 $248 $341 $1,845 $1,855 $146 $250 $187 $310 $250 $343 $1,855 $1,865 $147 $252 $189 $313 $252 $346 3-6 Payroll$1,875 Practice $1,865 Fundamentals $1,885 $1,875 $149 $148 $254 $257 $191 $193 $315 $317 $254 $257 $348 $351 $1,885 $1,895 $150 $259 $195 $320 $259 $353 $1,895 $1,905 $152 $261 $198 $322 $261 $355 $1,905 $1,915 Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. $153 $263 $200 $325 $263 $358 $1,915 $1,925 $154 $265 $202 $327 $265 $360 From: PayrollOrg Digital Publications (bookshelf.payroll.org) Generally, when employees have wages in excess of the last wage bracket Chapter 3 shown in the table, use the percentage method to figure withholding. SPECIAL TIPS Percentage Method The method most commonly used in computerized payroll systems is the percentage method. It applies to single taxpayers, married taxpayers filing separately, married taxpayers filing jointly, and heads of households for any  pay frequency (daily, weekly, biweekly, semimonthly, monthly, quarterly, semiannually, and annually). Unlike the wage bracket method, there are no limits on the amount of wages to which the percentage method can be applied. Worksheets 1A and B, 4, and 5 of Publication 15‑T have percentage method tables associated with them. This text discusses Worksheets 1A, 4, and 5, the steps associated with each worksheet, and provides examples of each. Worksheet 1 Worksheet 1 is designed for using percentage method tables for automated payroll systems. Worksheet 1A can be used with Forms W‑4 from 2020 or later and Forms W‑4 from 2019 and earlier. Worksheet 1B is used by a payer making periodic payments of pensions and annuities and works with Forms W‑4P from 2021 or earlier and for 2022 or later. Worksheet 1A used by employers is set out below. Paycheck Fundamentals 3-7 Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) Chapter 3 1. Percentage Method Tables method works for Forms W-4 for all prior, current, and fu- ture years. This method also works for any amount of wa- ges. If the Form W-4 is from 2019 or earlier, this method for Automated Payroll Systems works for any number of withholding allowances claimed. and Withholding on Periodic If you're a payer making periodic payments of pensions and annuities, use Worksheet 1B and the Percentage Payments of Pensions and Method tables in this section to figure federal income tax withholding. This method works for Forms W-4P for all Annuities prior, current, and future years. If a payer is figuring with- holding on periodic payments based on a 2021 or earlier If you're an employer with an automated payroll system, Form W-4P, the payer may also figure withholding using use Worksheet 1A and the Percentage Method tables in the methods described in section 3 and section 5. this section to figure federal income tax withholding. This Worksheet 1A. Employer’s Withholding Worksheet for Percentage Method Tables for Automated Payroll Systems Keep for Your Records Table 3 Semiannually Quarterly Monthly Semimonthly Biweekly Weekly Daily 2 4 12 24 26 52 260 Step 1. Adjust the employee's payment amount 1a Enter the employee’s total taxable wages this payroll period.................................. 1a $ 1b Enter the number of pay periods you have per year (see Table 3)............................... 1b 1c Multiply the amount on line 1a by the number on line 1b..................................... 1c $ If the employee HAS submitted a Form W-4 for 2020 or later, figure the Adjusted Annual Wage Amount as follows: 1d Enter the amount from Step 4(a) of the employee's Form W-4................................. 1d $ 1e Add lines 1c and 1d.............................................................. 1e $ 1f Enter the amount from Step 4(b) of the employee's Form W-4................................. 1f $ 1g If the box in Step 2 of Form W-4 is checked, enter -0-. If the box is not checked, enter $12,900 if the taxpayer is married filing jointly or $8,600 otherwise.............................................. 1g $ 1h Add lines 1f and 1g.............................................................. 1h $ 1i Subtract line 1h from line 1e. If zero or less, enter -0-. This is the Adjusted Annual Wage Amount....... 1i $ If the employee HAS NOT submitted a Form W-4 for 2020 or later, figure the Adjusted Annual Wage Amount as follows: 1j Enter the number of allowances claimed on the employee's most recent Form W-4................... 1j 1k Multiply line 1j by $4,300.......................................................... 1k $ 1l Subtract line 1k from line 1c. If zero or less, enter -0-. This is the Adjusted Annual Wage Amount....... 1l $ Step 2. Figure the Tentative Withholding Amount based on the employee's Adjusted Annual Wage Amount; filing status (Step 1(c) of the 2020 or later Form W-4) or marital status (line 3 of Form W-4 from 2019 or earlier); and whether the box in Step 2 of 2020 or later Form W-4 is checked. Note. Don't use the Head of Household table if the Form W-4 is from 2019 or earlier. 2a Enter the employee's Adjusted Annual Wage Amount from line 1i or 1l above..................... 2a $ 2b Find the row in the appropriate Annual Percentage Method table in which the amount on line 2a is at least the amount in column A but less than the amount in column B, then enter here the amount from column A of that row......................................................................... 2b $ 2c Enter the amount from column C of that row............................................. 2c $ 2d Enter the percentage from column D of that row........................................... 2d % 2e Subtract line 2b from line 2a........................................................ 2e $ 2f Multiply the amount on line 2e by the percentage on line 2d................................... 2f $ 2g Add lines 2c and 2f.............................................................. 2g $ 2h Divide the amount on line 2g by the number of pay periods on line 1b. This is the Tentative Withholding Amount............................................................ 2h $ Step 3. Account for tax credits 3a If the employee's Form W-4 is from 2020 or later, enter the amount from Step 3 of that form; otherwise, enter -0-...................................................................... 3a $ 3b Divide the amount on line 3a by the number of pay periods on line 1b............................ 3b $ 3c Subtract line 3b from line 2h. If zero or less, enter -0-....................................... 3c $ Step 4. Figure the final amount to withhold 4a Enter the additional amount to withhold from the employee’s Form W-4 (Step 4(c) of the 2020 or later form, or line 6 on earlier forms)............................................................ 4a $ 4b Add lines 3c and 4a. This is the amount to withhold from the employee’s wages this pay period.................................................................... 4b $ Here are the Steps for completing Worksheet 1A using an employee’s Publication 15-T (2024) Form W‑4 information. The steps for using Worksheet 1B in connection with9 Form W‑4P are similar. Step 1. Adjust the employee’s wage amount Line 1a. Enter the employee’s total taxable wages this payroll period. Note that this calls for taxable wages to be entered. It is therefore Ânecessary to deduct amounts that are excludable from income tax before entering an amount. Two common exclusions from employee income are qualified deferred contributions (e.g., 401(k) contributions; excludable from federal income tax withholding only) and cafeteria plan contributions (excludable from federal income tax withholding and social security and Medicare tax withholding) – these are covered later in this text. 3-8 Payroll Practice Fundamentals Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) Line 1b. Enter the number of pay periods per year (see Table 3 at top of Chapter 3 worksheet). Line 1c. Multiply the amount on Line 1a by the number on Line 1b. If the employee has submitted a Form W‑4 for 2020 or later, figure the Adjusted Annual Wage Amount for the employee as follows: Line 1d. Enter the amount from Step 4(a) of the employee’s Form W‑4. Line 1e. Add Lines 1c and 1d. Line 1f. Enter the amount from Step 4(b) of the employee’s Form W‑4. Line 1g. If the box in Step 2 of Form W‑4 is checked, enter -0‑. If the box is not checked, enter $12,900 if the taxpayer is married filing jointly or $8,600 otherwise. Line 1h. Add Lines 1f and 1g. Line 1i. Subtract Line 1h from Line 1e. If zero or less, enter -0‑. This is the Adjusted Annual Wage Amount. If the employee has not submitted a Form W‑4 for 2020 or later, figure the Adjusted Annual Wage Amount as follows: Line 1j. Enter the number of allowances claimed on the employee’s most recent Form W‑4. Line 1k. Multiply Line 1j by $4,300. Line 1l. Subtract Line 1k from Line 1c. If zero or less, enter -0‑. This is the Adjusted Annual Wage Amount. Step 2. Figure the Tentative Withholding Amount This amount is based on the employee’s Adjusted Annual Wage Amount; filing status (Step 1(c) of the 2020 or later Form W‑4) or marital status (Line 3 of Form W‑4 from before 2020); and whether the box in Step 2 of 2020 or later Form W‑4 is checked. Note: You cannot use the Head of Household table if the employee’s Form W‑4 is from before 2020. Line 2a. Enter the employee’s Adjusted Annual Wage Amount from Line 1i or 1l. Paycheck Fundamentals 3-9 Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) Chapter 3 Line 2b. Find the row in the appropriate Annual Percentage Method table in which the amount on Line 2a is at least the amount in Column A but less than the amount in Column B, then enter here the amount from Column A of that row. Line 2c. Enter the amount from Column C of that row. Line 2d. Enter the percentage from Column D of that row. Line 2e. Subtract Line 2b from Line 2a. Line 2f. Multiply the amount on Line 2e by the percentage on Line 2d. Line 2g. Add Lines 2c and 2f. Line 2h. Divide the amount on Line 2g by the number of pay periods on Line 1b. This is the Tentative Withholding Amount. Step 3. Account for tax credits Line 3a. If the employee’s Form W‑4 is from 2020 or later, enter the amount from Step 3 of that form; otherwise enter -0‑. Line 3b. Divide the amount on Line 3a by the number of pay periods on Line 1b. Line 3c. Subtract Line 3b from Line 2h. If zero or less, enter -0‑. Step 4. Figure the final amount to withhold Line 4a. Enter the additional amount to withhold from the Âemployee’s Form W‑4 (Step 4(c) of the 2020 and later form or Line 6 on earlier forms). Line 4b. Add Lines 3c and 4a. This is the amount to withhold from the employee’s wages this pay period. 3-10 Payroll Practice Fundamentals Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) Page 56 of 70 Fileid: … tions/p15t/2024/a/xml/cycle05/source 11:51 - 12-Dec-2023 Worksheet The type and rule 4 above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Chapter 3 Worksheet 4 is designed for using percentage method tables for manual payroll systems with Forms W‑4 from 2020 or later. Worksheet 4 is set out below. the Percentage Method or you can't use the Wage Bracket 4. Percentage Method Tables Method tables because the employee's annual wages ex- ceed the amount from the last bracket of the table (based for Manual Payroll Systems on marital status and pay period), use the worksheet be- low and the Percentage Method tables that follow to figure With Forms W-4 From 2020 or federal income tax withholding. This method works for any amount of wages. Later If you compute payroll manually, your employee has sub- mitted a Form W-4 for 2020 or later, and you prefer to use Worksheet 4. Employer’s Withholding Worksheet for Percentage Method Tables for Manual Payroll Systems With Forms W-4 From 2020 or Later Keep for Your Records Table 6 Monthly Semimonthly Biweekly Weekly Daily 12 24 26 52 260 Step 1. Adjust the employee’s wage amount 1a Enter the employee’s total taxable wages this payroll period............................. 1a $ 1b Enter the number of pay periods you have per year (see Table 6)......................... 1b 1c Enter the amount from Step 4(a) of the employee's Form W-4........................... 1c $ 1d Divide line 1c by the number on line 1b............................................ 1d $ 1e Add lines 1a and 1d.......................................................... 1e $ 1f Enter the amount from Step 4(b) of the employee's Form W-4........................... 1f $ 1g Divide line 1f by the number on line 1b............................................ 1g $ 1h Subtract line 1g from line 1e. If zero or less, enter -0-. This is the Adjusted Wage Amount...... 1h $ Step 2. Figure the Tentative Withholding Amount based on your pay frequency, the employee's Adjusted Wage Amount, filing status (Step 1(c) of Form W-4), and whether the box in Step 2 of Form W-4 is checked. 2a Find the row in the STANDARD Withholding Rate Schedules (if the box in Step 2 of Form W-4 is NOT checked) or the Form W-4, Step 2, Checkbox, Withholding Rate Schedules (if it HAS been checked) of the Percentage Method tables in this section in which the amount on line 1h is at least the amount in column A but less than the amount in column B, and then enter here the amount from column A of that row......................................................... 2a $ 2b Enter the amount from column C of that row........................................ 2b $ 2c Enter the percentage from column D of that row..................................... 2c % 2d Subtract line 2a from line 1h.................................................... 2d $ 2e Multiply the amount on line 2d by the percentage on line 2c............................. 2e $ 2f Add lines 2b and 2e. This is the Tentative Withholding Amount........................ 2f $ Step 3. Account for tax credits 3a Enter the amount from Step 3 of the employee’s Form W-4............................. 3a $ 3b Divide the amount on line 3a by the number of pay periods on line 1b...................... 3b $ 3c Subtract line 3b from line 2f. If zero or less, enter -0-.................................. 3c $ Step 4. Figure the final amount to withhold 4a Enter the additional amount to withhold from Step 4(c) of the employee’s Form W-4........... 4a $ 4b Add lines 3c and 4a. This is the amount to withhold from the employee’s wages this pay period................................................................ 4b $ Here are the Steps for completing Worksheet 4 using an employee’s Form W‑4 information. 56 Publication 15-T (2024) Step 1. Adjust the employee’s wage amount Line 1a. Enter the employee’s total taxable wages this payroll period. Line 1b. Enter the number of pay periods related to the applicable pay frequency (Table 6 of the worksheet). Paycheck Fundamentals 3-11 Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) Chapter 3 Line 1c. Enter the amount from Step 4(a) of the employee’s Form W‑4 Line 1d. Divide Line 1c by the number on Line 1b Line 1e. Add Lines 1a and 1d Line 1f. Enter the amount from Step 4(b) of the employee’s Form W‑4 Line 1g. Divide Line 1f by the number on Line 1b Line 1h. Subtract Line 1g from Line 1e. If zero or less, enter -0‑. This is the Adjusted Wage Amount. Step 2. Figure the Tentative Withholding Amount This step is based on pay frequency, the employee’s Adjusted Wage Amount, filing status (Step 1(c) of Form W‑4), and whether the box in Step 2 of Form W‑4 is checked. Line 2a. Find the row in the Standard Withholding Rate Schedules (if the box in Step 2 of Form W‑4 is not checked) or the Form W‑4, Step 2, Checkbox, Withholding Rate Schedules (if it has been checked) of the Percentage Method tables in this section in which the amount on Line 1h is at least the amount in column A but less than the amount in column B, then enter here the amount from column A of that row. Line 2b. Enter the amount from column C of that row. Line 2c. Enter the percentage from column D of that row. Line 2d. Subtract Line 2a from Line 1h. Line 2e. Multiply the amount on Line 2d by the percentage on Line 2c. Line 2f. Add Lines 2b and 2e. This is the Tentative Withholding Amount. Step 3. Account for tax credits Line 3a. Enter the amount from Step 3 of the employee’s Form W‑4. Line 3b. Divide the amount on Line 3a by the number of pay periods on Line 1b. Line 3c. Subtract line 3b from line 2f. If zero or less, enter -0-. 3-12 Payroll Practice Fundamentals Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) Step 4. Figure the final amount to withhold Chapter 3 Line 4a. Enter the additional amount to withhold from Step 4(c) of the employee’s Form W‑4. Line 4b. Add Lines 3c and 4a. This is the amount to withhold from the employee’s wages this pay period. Example 1: 2024 Form W‑4 and Worksheet 4 An employee has a 2024 Form W‑4 on file in which the employee claims a status of Married filing jointly with no other entries. After allowing for pretax deductions for a 401(k) plan deferral and cafeteria plan, the employee is paid biweekly and has wages of $4,200 for the pay period. Step 1 Adjust the employee’s wage amount Line 1a $4,200.00 Total taxable wages this pay period Line 1b 26 Pay periods per year (from Table 6 in ÂWorksheet 4) Line 1c $0.00 Amount on Step 4(a) of Form W‑4 Line 1d $0.00 1c ÷1b Line 1e $4,200.00 1a + 1d Line 1f $0.00 Amount from Step 4(b) of Form W‑4 Line 1g $0.00 1f ÷ 1b Line 1h $4,200.00 1e – 1g. If zero or less, then 0. This is the Adjusted Wage Amount. Step 2 Figure the Tentative Withholding Amount Line 2a $2,015.00 Amount from Column A of Step 2, checkbox not checked, married filing jointly percentage method table Line 2b $89.20 Amount from Column C of Step 2, checkbox not checked, married filing jointly percentage method table Line 2c 12% Percentage from Column D of Step 2, checkbox not checked, married filing jointly percentage method table Line 2d $2,185.00 1h – 2a Line 2e $262.20 2c x 2d Line 2f $351.40 2b + 2e Step 3 Account for tax credits Line 3a $0.00 Amount from Step 3 on the 2024 Form W‑4 Line 3b $0.00 3a ÷ 1b Line 3c $351.40 2f – 3b Paycheck Fundamentals 3-13 Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) Chapter 3 Page458 of 70 Fileid: … tions/p15t/2024/a/xml/cycle05/source Step Figure the final amount to withhold 11:51 - 12-Dec-2023 Line 4aand rule above prints The type $0.00 Additional on all proofs including withholding departmental reproduction amount proofs. MUST fromprinting. be removed before Step 4(c) of the 2024 Form W‑4 Line 4b $351.40 3c + 4a (this is the final withholding amount) 2024 Percentage Method Tables for Manual Payroll Systems With Forms W-4 from 2020 or Later BIWEEKLY Payroll Period STANDARD Withholding Rate Schedules Form W-4, Step 2, Checkbox, Withholding Rate Schedules (Use these if the box in Step 2 of Form W-4 is NOT checked) (Use these if the box in Step 2 of Form W-4 IS checked) If the Adjusted Wage of the If the Adjusted Wage of the Amount (line 1h) is: The amount that Amount (line 1h) is: The amount that tentative the Adjusted tentative the Adjusted But less amount to Plus this Wage But less amount to Plus this Wage At least— than— withhold is: percentage— exceeds— At least— than— withhold is: percentage— exceeds— A B C D E A B C D E Married Filing Jointly Married Filing Jointly $0 $1,123 $0.00 0% $0 $0 $562 $0.00 0% $0 $1,123 $2,015 $0.00 10% $1,123 $562 $1,008 $0.00 10% $562 $2,015 $4,750 $89.20 12% $2,015 $1,008 $2,375 $44.60 12% $1,008 $4,750 $8,856 $417.40 22% $4,750 $2,375 $4,428 $208.64 22% $2,375 $8,856 $15,888 $1,320.72 24% $8,856 $4,428 $7,944 $660.30 24% $4,428 $15,888 $19,871 $3,008.40 32% $15,888 $7,944 $9,936 $1,504.14 32% $7,944 $19,871 $29,246 $4,282.96 35% $19,871 $9,936 $14,623 $2,141.58 35% $9,936 $29,246 $7,564.21 37% $29,246 $14,623 $3,782.03 37% $14,623 Single or Married Filing Separately Single or Married Filing Separately $0 $562 $0.00 0% $0 $0 $281 $0.00 0% $0 $562 $1,008 $0.00 10% $562 $281 $504 $0.00 10% $281 $1,008 $2,375 $44.60 12% $1,008 $504 $1,188 $22.30 12% $504 $2,375 $4,428 $208.64 22% $2,375 $1,188 $2,214 $104.38 22% $1,188 $4,428 $7,944 $660.30 24% $4,428 $2,214 $3,972 $330.10 24% $2,214 $7,944 $9,936 $1,504.14 32% $7,944 $3,972 $4,968 $752.02 32% $3,972 $9,936 $23,998 $2,141.58 35% $9,936 $4,968 $11,999 $1,070.74 35% $4,968 $23,998 $7,063.28 37% $23,998 $11,999 $3,531.59 37% $11,999 Head of Household Head of Household $0 $842 $0.00 0% $0 $0 $421 $0.00 0% $0 $842 $1,479 $0.00 10% $842 $421 $739 $0.00 10% $421 $1,479 $3,269 $63.70 12% $1,479 $739 $1,635 $31.80 12% $739 $3,269 $4,708 $278.50 22% $3,269 $1,635 $2,354 $139.32 22% $1,635 $4,708 $8,225 $595.08 24% $4,708 $2,354 $4,113 $297.50 24% $2,354 $8,225 $10,215 $1,439.16 32% $8,225 $4,113 $5,108 $719.66 32% $4,113 $10,215 $24,279 $2,075.96 35% $10,215 $5,108 $12,139 $1,038.06 35% $5,108 $24,279 $6,998.36 37% $24,279 $12,139 $3,498.91 37% $12,139 58 Publication 15-T (2024) 3-14 Payroll Practice Fundamentals Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) The following example uses Worksheet 1A and the same facts from ÂExample 1. Chapter 3 The final calculated amounts are similar. Example 2: 2024 Form W‑4 and Worksheet 1A (Same as Example 1) An employee has a 2024 Form W‑4 on file in which the employee claims a status of Married filing jointly with no other Âentries. After allowing for pretax deductions for a 401(k) plan deferral and cafeteria plan, the employee is paid biweekly and has wages of $4,200 for the pay period. Step 1 Adjust the employee’s wage amount Line 1a $4,200.00 Wages per payroll period Line 1b 26 Pay periods per year Line 1c $109,200.00 1a x 1b Line 1d $0.00 Amount on Step 4(a) of Form W‑4 Line 1e $109,200.00 1c + 1d Line 1f $0.00 Amount on Step 4(b) of Form W‑4 Line 1g $12,900.00 If the box in Step 2 of Form W‑4 is checked, enter 0. Otherwise enter $12,900 for married filing jointly; $8,600 otherwise. Line 1h $12,900.00 1f + 1g Line 1i $96,300.00 1e – 1h (this is the Adjusted Annual Wage Amount) Line 1j [applicable to pre‑2020 Forms W‑4] Line 1k [applicable to pre‑2020 Forms W‑4] Line 1l [applicable to pre‑2020 Forms W‑4] Step 2 Figure the Tentative Withholding Amount Line 2a $96,300.00 1i (Adjusted Annual Wage Amount from above) Line 2b $39,500.00 Amount from Column A of Step 2, checkbox not checked, married filing jointly percentage method table Line 2c $2,320.00 Amount from Column C of Step 2, checkbox not checked, married filing jointly percentage method table Line 2d 12% Percentage from Column D of Step 2, checkbox not checked, married filing jointly percentage method table Line 2e $56,800.00 2a – 2b Line 2f $6,816.00 2e x 2d Line 2g $9,136.00 2c + 2f Line 2h $351.38 2g ÷ 1b (this is the Tentative Withholding Amount) Paycheck Fundamentals 3-15 Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) Chapter 3 Step 3 Account for tax credits Line 3a $0.00 Amount from Step 3 on the 2024 Form W‑4 Line 3b $0.00 3a ÷ 1b Line 3c $351.38 2h – 3b (this is the withholding amount after accounting for tax credits) Step Page 4 Figure the final amount to withhold 11 of 70 Fileid: … tions/p15t/2024/a/xml/cycle05/source 11:51 - 12-Dec-2023 Line 4a $0.00 Additional withholding amount from Step 4(c) The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. of the 2024 Form W‑4 Line 4b $351.38 3c + 4a (this is the final withholding amount) 2024 Percentage Method Tables for Automated Payroll Systems and Withholding on Periodic Payments of Pensions and Annuities STANDARD Withholding Rate Schedules Form W-4, Step 2, Checkbox, Withholding Rate Schedules (Use these if the Form W-4 is from 2019 or earlier, or if the Form W-4 is (Use these if the Form W-4 is from 2020 or later and the box in Step 2 of from 2020 or later and the box in Step 2 of Form W-4 is NOT checked. Also Form W-4 IS checked) use these for Form W-4P from any year.) If the Adjusted Annual If the Adjusted Annual Wage Amount on Wage Amount on Worksheet 1A or Worksheet 1A is: the Adjusted Annual of the Payment Amount on amount that of the Worksheet 1B is: The the Adjusted The amount that tentative Annual Wage tentative the Adjusted But less amount to Plus this or Payment But less amount to Plus this Annual Wage At least— than— withhold is: percentage— exceeds— At least— than— withhold is: percentage— exceeds— A B C D E A B C D E Married Filing Jointly Married Filing Jointly $0 $16,300 $0.00 0% $0 $0 $14,600 $0.00 0% $0 $16,300 $39,500 $0.00 10% $16,300 $14,600 $26,200 $0.00 10% $14,600 $39,500 $110,600 $2,320.00 12% $39,500 $26,200 $61,750 $1,160.00 12% $26,200 $110,600 $217,350 $10,852.00 22% $110,600 $61,750 $115,125 $5,426.00 22% $61,750 $217,350 $400,200 $34,337.00 24% $217,350 $115,125 $206,550 $17,168.50 24% $115,125 $400,200 $503,750 $78,221.00 32% $400,200 $206,550 $258,325 $39,110.50 32% $206,550 $503,750 $747,500 $111,357.00 35% $503,750 $258,325 $380,200 $55,678.50 35% $258,325 $747,500 $196,669.50 37% $747,500 $380,200 $98,334.75 37% $380,200 Single or Married Filing Separately Single or Married Filing Separately $0 $6,000 $0.00 0% $0 $0 $7,300 $0.00 0% $0 $6,000 $17,600 $0.00 10% $6,000 $7,300 $13,100 $0.00 10% $7,300 $17,600 $53,150 $1,160.00 12% $17,600 $13,100 $30,875 $580.00 12% $13,100 $53,150 $106,525 $5,426.00 22% $53,150 $30,875 $57,563 $2,713.00 22% $30,875 $106,525 $197,950 $17,168.50 24% $106,525 $57,563 $103,275 $8,584.25 24% $57,563 $197,950 $249,725 $39,110.50 32% $197,950 $103,275 $129,163 $19,555.25 32% $103,275 $249,725 $615,350 $55,678.50 35% $249,725 $129,163 $311,975 $27,839.25 35% $129,163 $615,350 $183,647.25 37% $615,350 $311,975 $91,823.63 37% $311,975 Head of Household Head of Household $0 $13,300 $0.00 0% $0 $0 $10,950 $0.00 0% $0 $13,300 $29,850 $0.00 10% $13,300 $10,950 $19,225 $0.00 10% $10,950 $29,850 $76,400 $1,655.00 12% $29,850 $19,225 $42,500 $827.50 12% $19,225 $76,400 $113,800 $7,241.00 22% $76,400 $42,500 $61,200 $3,620.50 22% $42,500 $113,800 $205,250 $15,469.00 24% $113,800 $61,200 $106,925 $7,734.50 24% $61,200 $205,250 $257,000 $37,417.00 32% $205,250 $106,925 $132,800 $18,708.50 32% $106,925 $257,000 $622,650 $53,977.00 35% $257,000 $132,800 $315,625 $26,988.50 35% $132,800 $622,650 $181,954.50 37% $622,650 $315,625 $90,977.25 37% $315,625 Worksheet 5 is designed for using percentage method tables for manual payroll systems with Forms W-4 from 2019 or earlier. Worksheet 5 can also be used in place of Worksheet 1B and its percentage tables for periodic payments of pensions or annuities in connection with a 2021 or earlier Form W-4P. Worksheet 5 is set out below. Publication 15-T (2024) 11 3-16 Payroll Practice Fundamentals Printed for:412124 Shraddha Rane © 2024 American Payroll Institute, Inc. All Rights reserved. From: PayrollOrg Digital Publications (bookshelf.payroll.org) The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. to figure federal income tax withholding. This method Chapter 3 5. Percentage Method Tables works for any number of withholding allowances claimed and any amount of wages. for Manual Payroll Systems Periodic payments of pensions or annuities with a With Forms W-4 From 2019 or 2021 or earlier Form W-4P. In lieu of Worksheet 1B and the Percentage Method tables in section 1, you may use Earlier Worksheet 5 and the Percentage Method tables in this section to figure federal income tax withholding on peri- If you compute payroll manually and your employee has odic payments of pensions or annuities with a 2021 or ear- not submitted a Form W-4 for 2020 or later, and you prefer lier Form W-4P. As an alternative, if you prefer to use the to use the Percentage Method or you can't use the Wage Wage Bracket Method of withholding, you may use Work- Bracket Method tables because the employee's annual sheet 3 and the Wage Bracket Method tables in section 3 wages exceed the amount from the last bracket of the ta- to figure federal income tax withholding on periodic pay- ble (based on marital status and pay period) or the em- ments of pensions or annuities with a 2021 or earlier Form ployee claimed more than 10 allowances, use the work- W-4P. sheet below and the Percentage Method tables that follow Worksheet 5. Employer’s Withholding Worksheet for Percentage Method Tables for Manual Payroll Systems With Forms W-4 From 2019 or Earlier Keep for Your Records Table 7 Annually Semiannually Quarterly Monthly Semimonthly Biweekly Weekly Daily $4,300 $2,150 $1,075 $358 $179 $165 $83 $17 Step 1. Adjust the employee’s wage amount 1a Enter the employee's total taxable wages this payroll period...................................... 1a $ 1b Enter the number of allowances claimed on the employee's most recent Form W-4..................... 1b 1c Multiply line 1b by the amount in Table 7 for your pay frequency................................... 1c $ 1d Subtract line 1c from line 1a. If zero or less, enter -0-. This is the Adjusted Wage Amount............... 1d $ Step 2. Figure the Tentative Withholding Amount based on your pay frequency, the employee's Adjusted Wage Amount, and marital status (line 3 of Form W-4). 2a Find the row in the Percentage Method table in this section in which the amount on line 1d is at least the amount in column A but less than the amount in column B, and then enter here the amount from column A of that row............................................................................... 2a $ 2b Enter the amount from column C of that row................................................. 2b $ 2c Enter the percentage from column D of that row.............................................. 2c % 2d Subtract line 2a from line 1d............................................................. 2d $ 2e Multiply the amount on line 2d by the percentage on line 2c...................................... 2e $ 2f Add lines 2b and 2e. This is the Tentative Withholding Amount................................. 2f $ Step 3. Figure the final amount to withhold 3a Enter the additional amount to withhold from line 6 of the employee's Form W-4....................... 3a $ 3b Add lines 2f and 3a. This is the amount to withhold from the employee's wages this pay period...... 3b $ Here are the Steps for completing Worksheet 5 using an employee’s Form W‑4 information. Step 1. Adjust the employee’s wage amount. Line 1a. Enter the employee’s total taxable wages this payroll period. 62 Publication 15-T (2024) Line 1b. Enter the number
