 In this presentation, we will calculate the federal income tax withholding or FIT withholding using the percentage method. Here we are in our payroll register. We have in the payroll register gotten to the total earnings support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it section and then we're getting to the FIT wages and we're going to use those FIT wages in order to calculate the FIT federal income tax. So we've done this for our hourly employee which we use tables for now we're going to do this for the big earner Judy Jones and she's going to need we're going to need to use a percentage method in order to do the calculation here. So we'll do the same thing just to make sure that we understand that the FIT wages being different than total earnings they're going to be reduced by things such as a cafeteria plan section 125 plan and a retirement plan which we will then use to calculate our earnings. So to do that we're going to be in K 51 I'm going to say equals and then point to the total earnings minus the cafeteria plan minus the retirement plan and enter. Now we're going to use this number to calculate the federal income tax so to do that we're going to go to the circular E. So if we go to the circular E that'll give us our information that we need and this is publication 15 circular E for our example. I'm going to scroll down to our data we're looking for the tables I'm going to first go to the wages here and just scroll down until we get to the tables that we need to calculate. We're looking for the percentage tables and here they are. So the percentage method tables we're going to be using these rather than the more easy tables because this usually this happens when the earners are earning too much and you can't use the simple tables and you got to use the percentage method. So to do this we're going to scroll back up top first we need to get the percentage method allowances which are broken out by pay period. So we happen to be weekly so we're going to pick up the weekly pay period which is 79 80 and multiply it times the number of allowances that are given that would of course be given on the W for form. So we're going to go back to our excel sheet here and we're going to go into our worksheet on the right and I'm going to start off with the number of the FIT withholding which is this number 3188.85 then we're going to have the amount per allowance for the table that's the 79 80 we just looked at I'm going to bring that into the inside to do our little adjustment calculation to our FIT pay that we'll be using for the table then we're going to take the number of allowances which would be on the earnings record or possibly on the register tier four for us so she's married with four allowances scrolling back over sorry for the scrolling and we're going to say that that is four and then I'm going to pull this out to the outside now so I'm just going to multiply this out we're going to say this equals this 7980 times four and that gives us 31920 then we're going to subtract this out this is our FIT before that minus the 319 so this equals this number 3188.85 minus the 31920 gives us the 2869.65 and then then we're going to go back to our table and we're going to find where that lies where this number lies in our tables here so we're going back down we're going to pick the right table now we're looking for a weekly payroll period and we're going to go to the married side so we're over here on married weekly okay so our number was 2869.65 so these are the where we're going to be in between so it's going to be between 1711 and 3395 so this is our limit now note what it says it's a little confusing the way they say it it says 171.3536 plus 22% of 1711 so if we want to know like kind of why that might help us understand this a bit note that this is our top tax bracket is what we're saying here 22% but some of our wages are taxed 10 some at 12 now we already know what we can easily get the tax or the table can provide it at a certain point which would be in this case the last the lower end of the bracket of the bracket we're in this 1711 had a 10% component and a 12% components that we can already calculate that's going to come out to 171.36 about that's the idea at least so this we've already got this number all we need to do is calculate the highest component at 22% because we don't know how many dollars to tax at that 22% because that's somewhere within this range so that's what we're trying to do here so to do that we're going to take this lower limit which they give here and is here and we're going to subtract that from our number so we're going to take that 1711 so back to our table here we're going to take the 1711 and subtract our number from that so we're going to say this equals the 286965 minus the 1711 gives us 115865 that then is the number that's going to be taxed at the highest bracket which on this table is working our highest bracket is 22% so we're going to say 0.22 or 22% and then multiply that out this equals this number times the 22% and that gives us our 25190 then we're going to add to it what they tell us to which was just the 171.36 that's from the that's from the 10% and 12% we don't need to recalculate portion so we're going to say this is going to be 171.36 and then we can add these up equals we'll sum them the sum of this and this and enter so that's the 42626 now that's going to go then over here in our table we're just going to say this equals the 42626 and enter so then we could sum these up the totals up but that's that is the FIT withholding on the percentage method