If this is your first payroll with Intuit Online Payroll, you may notice that federal income tax withholding is calculated differently and the net pay varies by a few cents from check to check. We use the annualized method for calculating income tax withholding, which is an accurate and widely used standard.
Let's say you have an employee who gets paid weekly and claims a Married filing status with four withholding allowances. The employee's year-to-date wages are $500 and the period-to-date wages are $450.
| What we do | The result | Example | |
|---|---|---|---|
| 1. | Add current (period-to-date) wages to the year-to-date wages. | Total gross wages |
$450 |
| 2. |
Multiply total wages per pay period by the annual number of pay period. (Weekly pay schedule=52 periods) |
Annual gross wages |
950 |
| 3. |
Subtract the withholding allowance amount. ($3,800 per allowance) |
Annual taxable wages | 49,400 -15,200 34,200 |
| 4. |
Calculate the annual federal tax using the tax rate table. (Married=Line 3) |
Annual federal tax |
34,200 8,200 1,305 |
| 5. | Divide the annual federal tax by the annual number of pay periods. | Total amount of federal tax for the multiple paychecks within the pay period | 3,045 / 52 = 58.56 |
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