With the employee's Social Security Tax rate decreasing, many have seen there net pay go down instead of up. What happened? The IRS released new tax brackets for 2011. Some may have been on the cuff of tax brackets in 2010 and found themselves bumped up to the next tax bracket this year.
The IRS publishes the new information every year in what is known as PUB 15. Pages 35 give you the allowance deductions. For every allowance, you multiple the amount according to your pay schedule. This is what is deducted from your taxable wages, giving you the taxable wages for Federal Withholding. On pages 36-37 are the tax charts, and page 38 and on are easy reference tables to quickly find the estimated taxes.
Example: employee is single with two allowance and gets paid $400.00 biweekly with no pretax deductions.
Gross taxable wages = 513.75
142.31 X 2 = 284.62
FIT taxable wages = 229.13
This puts the employee in the 10% tax bracket
229.13-81.00 = 148.13
148.13 x 10% = 14.81
Or...on page 42 of the Pub 15, the estimate tax would be $14.00.
However, this same employee last year would of had to more than 233.00 in FIT taxable wages for any FIT to be withheld. Last year the employee would have paid 31.85 in SS, but would pay 21.58 this year. When you add the $14.00 of FIT, you come out paying 3.73 extra in taxes.
Confused? Let us worry about the tax charts, calculations, etc. We do all the hard work and guarantee accuracy or we will pay the penalties. For more information and payroll processing quote, please call 765-288-PAID, or visit us on the web at www.tpspayroll.com.
