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  • Section: US Payroll
  • Last updated: May 21, 2019, 5:11 p.m.

Calculating Withholding Tax

AccountEdge calculates withholding tax, based on an employees estimated annual wage. For a given paycheck, the annual wage to determined by the gross wage of a paycheck, multiplied by the number of pay periods for the employee. The result is the value used to determine the payroll withholding tax bracket. So, if the paycheck of a weekly-paid employee is $1000, the software will calculate withholding taxes assuming an annual wage of $52,000 (52 weeks per year * $1,000 = $52,000). If next week the paycheck wages are $2000, the software will calculate the withholding taxes assuming an annual salary of $104,000 (52 weeks per year * $2,000 = $104,000).

When the withholding tax is determined by a Base tax plus a Percentage of wage over the Base, taxes are calculated by determining the annual wage (see above), then determining the withholding tax bracket:

( ( ( ( Annual Wage - 'of Wages Over' ) * '+ Percentage' ) + '= Base Tax' ) / pay periods )

As an example, suppose a weekly-paid employee is paid an annual salary of $95,000.00. The weekly gross wage is $1826.93. The weekly withholding is (based on the table below):

( ( ( ( $95,000.00 - $91,600.00 ) * 28% ) + $18,193.75 ) / 52 )
( ( ( $3,400 * 28% ) + $18,193.75 ) / 52 )
( ( $952 + $18,193.75 ) / 52 )
( 368.19 )

Suppose this weekly-paid employee earns only $1,000 for a given week. The weekly withholding is (based on the table below):

( ( ( ( $52,000 - $39,150.00 ) * 25% ) + $5,081.25 ) / 52 )
( ( ( $12,850.00 * 25% ) + $5,081.25 ) / 52 )
( ( $3,212.5 + $5,081.25 ) / 52 )
( 159.50 )

The above calculation represents a specific table (shown below). There are different tables for different states and localities.

If the amount of wages (after subtracting withholding allowances) is: Table 1. Typical Withholding Tax Table
Wages Over Not to Exceed = Base Tax + Percent of Wages Over
$0.00 $2,250.00 $0.00 0% $0.00
$2,250.00 $11,325.00 $0.00 10% $2,250.00
$11,325.00 $39,150.00 $907.50 15% $11,325.00
$39,150.00 $91,600.00 $5,081.25 25% $39,150.00
$91,600.00 $188,600.00 $18,193.75 28% $91,600.00
$188,600.00 $407,350.00 $45,353.75 33% $188,600.00
$407,350.00 $409,000.00 $117,541.25 35% $407,350.00