Payroll Accounting

Example 4-12

GROSSING-UP. Cotter Company wants to award a $4,000 bonus to Donna D'Amico. In addition, it wants the net bonus payment to equal $4,000. Assuming D'Amico is still under the OASDI/FICA limit, the calculation would be:

A.	$4,000
	1 – 0.22 (Supplemental W/H rate) – 0.062 (OASDI) – 0.0145 (HI)

B.	$4,000	= $5,685.86 grossed-up bonus
	0.7035

	Line Item Description	Amount
C.	Gross bonus amount	$5,685.85*
	Federal income tax withheld	1,250.89
	OASDI tax withheld	352.52
	HI tax withheld	82.44
	Take-home bonus check	$4,000.00

If state or local taxes apply, they must also be included in the formula.

*Need to subtract $0.01 from $5,685.86 in order to arrive at $4,000.00 (due to rounding).

Damerly Company (a Utah employer) wants to give a holiday bonus check of $250 to each employee. Since it wants the check amount to be $250, it will need to gross-up the amount of the bonus. Calculate the withholding taxes and the gross amount of the bonus to be made to John Rolen if his cumulative earnings for the year are $46,910. Besides being subject to social security taxes and federal income tax (supplemental rate), a 4.95% Utah income tax must be withheld on supplemental payments.

Enter deductions beginning with a minus sign (-). You may need to adjust by a penny (subtract or add) to the gross amount to get net pay to calculate exactly to $250.00. Round your calculations and final answers to the nearest cent.

As we go to press, the federal income tax rates for 2024 are being determined by budget talks in Washington, and are not available for publication. For this edition, the 2023 federal income tax tables for Manual Systems with Forms W-4 From 2020 or Later with Standard Withholding and 2023 FICA rates have been used.

Line Item Description	Amount
Gross bonus amount	fill in the blank 1 of 6$
Federal income tax withheld	fill in the blank 2 of 6
OASDI tax withheld	fill in the blank 3 of 6
HI tax withheld	fill in the blank 4 of 6
Utah income tax withheld	fill in the blank 5 of 6$
Take-home bonus check	fill in the blank 6 of 6$

Example 4-1

Justin Miah, single, is a waiter at Metro American Bar and Grill. In his first week, he earned $350 for 20 hours and had $600 of reported tips. Justin's employer will withhold Federal Income tax based on the total of $950. Net pay is calculated by subtracting the withholding amounts from employer paid earnings of $350.

Example 4-4

To use the 2023 Wage Bracket Method for Manual Payroll Systems With Forms W-4 From 2020 or Later using Standard Withholding, follow the steps illustrated below.

Step 1
Select the withholding table that applies to the employee's pay period.	➡	Adrienne Huff is married filing jointly (MFJ). She is paid weekly at a rate of $815.
Step 2
Locate the wage bracket (the first two columns of the table) in which the employee's gross wages fall.	➡	Locate the appropriate wage bracket (see Figure 4.7):
		At least $815 but less than $825
Step 3
Follow the line for the wage bracket across to the right to the column showing the appropriate filing status with standard withholding. Withhold this amount of tax.	➡	Move across the line to the column showing Married Filing Jointly, Standard withholding.
		The tax to withhold is $29.

Justin Matthews is a waiter at the Duluxe Lounge. In his first weekly pay in March, he earned $300.00 for the 40 hours he worked. In addition, he reports his tips for February to his employer ($500.00), and the employer withholds the appropriate taxes for the tips from this first pay in March.

Calculate his net take-home pay assuming the employer withheld federal income tax (   wage-bracket,  married filing jointly), social security taxes, and state income tax (2%).

Enter deductions beginning with a minus sign (-).

As we go to press, the federal income tax rates for 2024 are being determined by budget talks in Washington, and are not available for publication. For this edition, the 2023 federal income tax tables for Manual Systems with Forms W-4 From 2020 or Later with Standard Withholding and 2023 FICA rates have been used.

Click here to access the Wage-Bracket Method Tables.

Line Item Description	Amount
Gross pay	fill in the blank 1 of 6$
Federal income tax	fill in the blank 2 of 6
Social security taxes - OASDI	fill in the blank 3 of 6
Social security taxes - HI	fill in the blank 4 of 6
State income tax	fill in the blank 5 of 6
Net pay	fill in the blank 6 of 6$