 In this presentation we will calculate the federal income tax FIT using tax tables. This is going to be our example set of data. We're looking at the payroll register focusing in mainly on Bill Smith. Bill Smith who is an employee worked 40 hours at 17 rate for a regular pay of 680, 3 hours overtime, overtime rate 2550 for overtime pay 7650, total earnings then 75650. We're focusing here on the calculation of FIT federal income tax. Remember that's not our federal income tax as the employers but the employee's federal income tax which is reported on the employee's 1040 at the end of the year however is something that we need to calculate throughout the year take out of their paycheck as the employer in accordance to comply with the law. So that's what we're doing here. We're going to remove federal income tax in an attempt to match how much is going to be taken out so that when they do the 1040 at the end of the year it will have already been removed and so that's what we're going to do. First we need to know what the FIT wages are which could differ than total wages. So total wages is here was that 75650. It's going to be reduced by those things that are on the 1040 for example typically reduced for gross pay or adjusted gross income things like retirement plans and the cafeteria plan. So we're going to take those out of FIT so that we can then calculate FIT using the tables. Also note that the federal income tax when we say federal income tax it's not the employer's taxes that we pay on our tax return meaning that a corporation pays federal income tax a partnership pays it on a flow through so does the sole proprietor however those are on net income and we're paying the federal income tax for the employees that the employees in essence owe and we'll ultimately report on their 1040. So to get the federal income tax wages we're going to start with the 75650 and then we'll subtract from it the cafeteria plan. So we first need to know that so we got to get the cafeteria plan on the retirement plan. So these these numbers we gave these numbers here and so that's going to be the 756.5 minus 250 minus the 35 would give us the 47150. So we're looking for 47150 is going to be our actual FIT wages and then we're not focused so much on the second employee but if PAM had 280 and 185 same type of thing we're going to say 365 3.85 minus 280 minus the 185 gives us 3188 85 3188 85. So these are the numbers we're then going to use to look up our tables now that we have these numbers we can go to our tables and look this up now there's the totals here so if we go to our tables they look like this and we're focusing in here on this this first FIT wages and looking this number up in the table it's important to note that we get the right table we have to if we go through the circular E to find this and you can go on to the irs.gov website and find it the current circular E whatever the current time period is and then go to the brackets and find the correct tables there's going to be a ton of tables because they're going to have to have a different table for pay periods so we'll need to know when the pay period is ours we're going to say is weekly in this case could be bi-weekly could be semi-monthly could be monthly just make sure not to mix up semi-monthly and bi-weekly they're different so you want to pick up the right the right table there and then we need to know if the person is single or married so again there's going to be two separate tables for each pay period based on single or married and note all this complexity is basically because of the complexity of calculating the tax it's a it's a progressive tax system so we have to somehow figure out how what the tax brackets do and one way to do that is with the tables clearly it's a lot easier to have software that will automatically look up this information for us but it's still important to kind of look this up and try to figure out why the tables are this way so that we can understand it and if we do any tax planning it's important for us to have some concept of what's going on here so we're going to look for this 141 within these two sets and then find the number of exemptions here which for bill is one so we're going to say that it's going to be between the 470 and the 480 it's right in between here and that's going to be the exemptions one will get us to this 300 or this $35 so on this one paycheck we're going to withhold $35 also note that if it was on the 470 like if notice 470s here twice so you might say well should we pick the 34 the 35 typically we'll pick the higher number and that's kind of like a conservative type estimate we want to estimate on withholding too much than too little we would rather have our employee get a bigger withholding or bigger return on their 1040 at the end of the year than paying because that's probably more likely to cause problems so typically we'll withhold more than less you might ask well this is kind of complicated what if I picked up the wrong number which is possible like if we're doing this by hand if we picked up the wrong number it would kind of watch itself out at the end the FIT it kind of works itself out in a way because when we do the 1040 we'll have the we'll have the total withholdings that will match up to what the actual tax calculation was based on our 1040 and if we withheld too much then we'll get a more of a refund if we have withheld it too little then we'll owe money and so that's going to we want it to be right on target because we want to give our employees as much money as they can in their paycheck or if we are the employee we're trying to calculate our payroll to get as much as we can in our paycheck and not owe any money at the end of the year getting a refund is not the objective the objective is to not pay penalties and interest at the end of the year and if we end up owing a lot of money we could then end up paying interest and penalties otherwise we would it would be better for us to actually not pay until the end of the year because then we get to hold on to our money longer and invest it and and possibly make money on it so that's why that's why we have to do the withholdings the IRS wants their money sooner and therefore we have to do these withholdings and get the money to them as the time passes so this is going to be the 35 then and so we're going to put that into our information here so we have the FIT and we're going to withhold the $35 from the FIT on our table