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SECTION II • EmplOyEE’S payrOll dEduCTIONS 283

calculatinG an emPloyee’s federal income tax (fit) WithholdinG by the PercentaGe method 9-6

federal income tax (FIT) A graduated tax based on gross earn- ings and marital status that is paid by all workers earning over a certain amount in the United States.

withholding allowance An amount that reduces an employee’s withholding amount. Employees are allowed one withholding allowance for themselves, one for their spouse if the spouse does not work, and one for each dependent child or elderly parent living with the taxpayer but not working.

percentage method An alterna- tive method to the wage bracket tables used to calculate the amount of an employee’s federal income tax withholding.

Earnings subject to tax = Wage base − Year-to-date earnings Earnings subject to tax = 128,400 − 125,600 = $2,800 Social security tax = Earnings subject to tax × 6.2% Social security tax = 2,800 × .062 = $173.60

t r y i t e x e r c i S e 1 0

Rick Nicotera has year-to-date earnings of $123,900. If his next paycheck is $6,000, what is the amount of his social security deduction?

C H E C K Y O U R A N S W E R W I T H T H E S O L U T I O N O N P A G E 3 0 4 .

Payroll Period One Withholding Allowance

Weekly . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 79.80 Biweekly . . . . . . . . . . . . . . . . . . . . . . . . . . . 159.60 Semimonthly . . . . . . . . . . . . . . . . . . . . . . . . 172.90 Monthly . . . . . . . . . . . . . . . . . . . . . . . . . . . 345.80 Quarterly . . . . . . . . . . . . . . . . . . . . . . . . . . 1,037.50 Semiannually . . . . . . . . . . . . . . . . . . . . . . . 2,075.00 Annually . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,150.00 Daily or miscellaneous (each day of the payroll period) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.00

e x h i B i T 9 - 1

Percentage Method Amount for One Withholding Allowance

26441_ch09_hr_270-311_1.indd 283 10/17/18 2:56 PM

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