Examples of Tax Calculation Methods

The following examples illustrate how the payroll process calculates taxes using the various calculation methods.

Default Method for Federal Runs

During a hypothetical reporting year, for an employee on a biweekly payroll and claiming single 0, the payroll process would calculate these earnings and taxes.

Period	Payroll run	Taxable earnings	Tax due
1	Regular run	$2500	$440.72
2	Regular run	$5000	$1107.95
3	Regular run 1	$2500	$440.72
3	Regular run 2	$2500	$440.72

Default Method for Federal Runs Using Period-to-Date Amount

However, for that same year, if the payroll process uses the period-to-date amount, its results would be this.

Period	Payroll run	Taxable earnings	Tax due
1	Regular run	$2500	$440.72
2	Regular run	$5000	$1107.95
3	Regular run 1	$2500	$440.72
3	Regular run 2	$2500	$667.23

In this case, the payroll process:

1. Combines the third period wages.

2. Calculates what would have been withheld had the $5000 been paid in one run.

3. Subtracts what was withheld already for that period.

   This determines the difference to withhold for the second regular run of the third period.

   $1107.95 - $440.72 = $667.23

Aggregation Method for Supplemental Federal Runs

For an employee that's:

1. On a biweekly payroll, claiming single 0

2. Has bonus earnings configured as Supplemental and process and pay with other earnings

In this case, the payroll process results would be:

Period	Payroll run	Taxable earnings	Tax due
1	Supplemental	$5000	$1107.95
2	Regular	$2500	$440.72
2	Supplemental	$5000	$1372.23
3	Regular	$2500 + $5000	$1812.95

Flat Percentage Method for Federal

For an employee that's:

1. On a biweekly payroll, claiming single 0

2. Has bonus earnings configured as Supplemental and process and pay with other earnings

In this case, the payroll process results would be:

Period	Payroll run	Taxable earnings	Tax due
1	Supplemental	$5000	$1250
2	Regular	$2500	$440.72
2	Supplemental	$5000	$1250
3	Regular	$2500 + $5000	$1812.95