Federal Tax Calculation in U.S. Payroll in Microsoft Dynamics GP

Issue


How are Federal Taxes calculated for a biweekly Payroll?


Resolution


Federal Taxes are calculated for a biweekly Payroll as follows:


1. All wages should be annualized. Biweekly is 26 pay periods per year, so take the biweekly pay multiplied by the pay periods for the year to arrive at an annual wage amount.

2,769.24 = Biweekly pay

2,769.24 * 26 = $72,000.24 annually

2. Annualize Deductions that are sheltered from Tax. In this example, we have an 8% 401K deduction and a fixed amount medical deduction, both sheltered from tax.

Annualize 401k Deductions:

2,769.24 * 8% = 221.54

221.54 * 26 = $5,760.02

Annualize Medical Deduction:

55.08 * 26 = 1,432.08


3. Subtract Exemptions (3100/Exemption) from annual wages.

72,000.24 - 6,200.00= 65,800.24


4. Subtract Tax Sheltered Deductions.

65,800.24 - 5,760.02 - 1,432.08 = 58,608.14 = Taxable Wages

This puts you in the Tax Tables at 25% (Single)


So you have a Tax of $3,870.00 (From Tax Tables).


Then take 58,608.14 -30,800.00 (FromTax Tables) = 27,808.14


27,808.14 * 25% = 6,952.04


3,870.00 + 6952.04 = 10822.04 / 26 = 416.23 = Federal Tax per biweekly pay


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This article was TechKnowledge Document ID:24346