Answer to Question #111578 in Accounting for Everlyn

Question

Edward Dorsey is a part-time employee, and during the biweekly pay period he earned $395. In addition, he is being paid a bonus of $300 along with his regular pay. If Dorsey is single and claims two withholding allowances, how much would be deducted from his pay for FIT?

Hint: There are two ways to determine his deduction—do not use tables for percentage method.

(biweekly withholding allowance = $161.50)

Tax table link below

https://cxp.cengage.com/contentservice/assets/T=1587480948747/btpa20t/images/chapter04/Exhibit_4-1.html

Answer 1

A. Wage BracketTable

Under the wage bracket method, find the proper table for yourpayroll period and the employee's marital status. Then, based on the number of withholding allowances claimed and the amount of wages, find the amount of income tax to be withheld.

Payroll period is biweekly and Dorsey is single and no ofallownces are 2

- In biweekly table for 2 allowance and wages amount of $395first slab will be applied where substract amount is $398.54 andrate is 10%

Accordingly $395-$398.54 =0

Since substract amount is >wages amount there will be 0withholding tax.

B. Prercentagemethod

Step 1 For bi weekly payroll system one withhold allowance-$155.80

Step 2 Total wages payment $395

2 allowances ($155*2) = $310

Step 3 Amount subject to withholding $395-$310=$85

Step 4 Tax to be withheld as per table 1 10% over $43

hence $85-$43=$42*10%=$4.2

tax to be withheld $4.2

C. bonus $300

Bonuses may be taxed in one of two ways, either the flatpercentage method or the supplemental wage withholding method . If your employee had no income taxes withheld during the year, you should use the additional wage withholding method. This may occurwhen an employee is otherwise exempt from income tax withholding.These methods apply only when the bonus payment and regular wages of the employee are specified separately.

1. Method 1 Withhold flat 25%

$300*25%=475

2. If you did not withhold income tax from the regular wages of the employee in the current or immediately preceding calendar year, use method 1-b. This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is higher than the wages.

step 1 Add the bonus amount to the amount of wages$395+$300=$695

Step 2 Determine the amount of withholding on the combined $695amount using the wage bracket tables.

$695-$398.54=$296.46*10%

= $29.64

Step 3 Subtract the amount withheld from wages $29.64-$4.2=$25.45

tax on bonus $25.45