Give step-by-step solution with explanation and final answer:
Calculate Federal Income Tax Withholding Using Two Methods
(
Pre
-
2
0
2
0
Form W
-
4
)
For each employee listed, use both the wage
-

Question

Give step-by-step solution with explanation and final answer:
 ﻿Calculate Federal Income Tax Withholding Using Two Methods 
(
Pre
-
2
0
2
0
 ﻿Form W
-
4
)
For each employee listed, use both the wage
-
bracket method and the percentage method to calculate federal income tax withholding for an employee who has submitted a pre
-
2
0
2
0
 ﻿Form W
-
4
.
 ﻿Refer to Publication 
1
5
-
T
.
NOTE: For simplicity, all calculations throughout this exercise, both intermediate and final, should be rounded to two decimal places at each calculation.
1
:Thomas Fortuna 
(
married; 
4
 ﻿federal withholding allowances
)
 ﻿earned weekly gross pay of $
7
4
5
.
 ﻿For each period, he makes a 
4
0
1
(
k
)
 ﻿retirement plan contribution of 
1
0
%
 ﻿of gross pay.
Using wage
-
bracket method: Federal income tax withholding 
=
 ﻿$
Using percentage method: Federal income tax withholding 
=
 ﻿$
2
:Barbara Houlihan 
(
single; 
1
 ﻿federal withholding allowance
)
 ﻿earned daily gross pay of $
3
2
0
.
 ﻿For each period, she makes a 
4
0
1
(
k
)
 ﻿contribution of 
1
2
%
 ﻿of gross pay.
Using wage
-
bracket method: Federal income tax withholding 
=
 ﻿$
Using percentage method: Federal income tax withholding 
=
 ﻿$
3

VIPSolutions · Accepted Answer

# Federal Income Tax Withholding Calculations  
*(Using Pre-202 Form W-4 and 2019 Publication 15-T tables and rules)*

For each employee, we'll:
- Subtract pre-tax deductions (401(k) contributions or FSA) from gross pay to get **taxable wages**.
- Use both the **wage-bracket method** and the **percentage method** (per IRS Pub. 15-T, 2019) with the employee's marital status and number of allowances.
- Round all calculations to two decimal places at each step.

---

## 1. Thomas Fortuna  
**Status:** Married; 4 allowances  
**Weekly gross:** $745  
**401(k):** 10% of $745 = $74.50  
**Taxable wages:**  
$$
745 - 74.50 = \$670.50
$$

### 1a. Wage-Bracket Method  
- **Find the row for "Married, weekly pay, 4 allowances".**  
- **Look up $670.50 in the 2019 Publication 15-T (page 46).**  
  - For **Married, 4 allowances**, weekly, $670.50 falls in the $670–$680 bracket.

**Table value:**  
- **Withholding = $9.00**

### 1b. Percentage Method  
#### Step 1: Calculate total allowance amount  
- 1 allowance (weekly) = $80.80  
- 4 allowances: $80.80 × 4 = $323.20

#### Step 2: Subtract allowance amount from taxable wages  
$$
\$670.50 - \$323.20 = \$347.30
$$

#### Step 3: Use Married, weekly, percentage method table (2019 Pub. 15-T, page 48)  
- For **$347.30**:  
  - Over $340 but not over $1,077  
  - **Withhold $ + 10% of excess over $340**

$$
\text{Excess} = \$347.30 - \$340 = \$7.30  
\text{Tax} =  + (.10 \times \$7.30) = \$.73
$$

**Final answer:**
- **Wage-bracket method:** $9.00  
- **Percentage method:** $.73

---

## 2. Barbara Houlihan  
**Status:** Single; 1 allowance  
**Daily gross:** $320  
**401(k):** 12% of $320 = $38.40  
**Taxable wages:**  
$$
320 - 38.40 = \$281.60
$$

### 2a. Wage-Bracket Method  
- **Find the row for "Single, daily pay, 1 allowance".**  
- **Look up $281.60 in 2019 Publication 15-T (page 40).**  
  - For **Single, 1 allowance**, daily, $281.60 falls in the $280–$285 bracket.

**Table value:**  
- **Withholding = $41.00**

### 2b. Percentage Method  
#### Step 1: Calculate total allowance amount  
- 1 allowance (daily) = $11.54

#### Step 2: Subtract allowance amount from taxable wages  
$$
\$281.60 - \$11.54 = \$270.06
$$

#### Step 3: Use Single, daily, percentage method table (2019 Pub. 15-T, page 42)  
- For **$270.06**:  
  - Over $229 but not over $798  
  - **Withhold $22.10 + 22% of excess over $229**

$$
\text{Excess} = \$270.06 - \$229 = \$41.06  
\text{Tax} = 22.10 + (.22 \times \$41.06) = 22.10 + 9.03 = \$31.13
$$

**Final answer:**
- **Wage-bracket method:** $41.00  
- **Percentage method:** $31.13

---

## 3. Marcus Xavier  
**Status:** Married; 5 allowances  
**Monthly gross:** $3,650  
**FSA:** $200  
**Taxable wages:**  
$$
365 - 200 = \$345.00
$$

### 3a. Wage-Bracket Method  
- **Find the row for "Married, monthly pay, 5 allowances".**  
- **Look up $3,450.00 in 2019 Publication 15-T (page 56).**  
  - For **Married, 5 allowances**, monthly, $3,450 falls in the $3,430–$3,460 bracket.

**Table value:**  
- **Withholding = $130.00**

### 3b. Percentage Method  
#### Step 1: Calculate total allowance amount  
- 1 allowance (monthly) = $350.00  
- 5 allowances: $350.00 × 5 = $1,750.00

#### Step 2: Subtract allowance amount from taxable wages  
$$
\$3,450.00 - \$1,750.00 = \$1,700.00
$$

#### Step 3: Use Married, monthly, percentage method table (2019 Pub. 15-T, page 58)  
- For **$1,700.00**:  
  - Over $1,610 but not over $3,117  
  - **Withhold $89.00 + 12% of excess over $1,610**

$$
\text{Excess} = \$1,700.00 - \$1,610.00 = \$90.00  
\text{Tax} = 89.00 + (.12 \times \$90.00) = 89.00 + 10.80 = \$99.80
$$

**Final answer:**
- **Wage-bracket method:** $130.00  
- **Percentage method:** $99.80

---

# Final Answers Summary

| Employee          | Wage-Bracket Method | Percentage Method |
|-------------------|--------------------|------------------|
| Thomas Fortuna    | $9.00              | $.73            |
| Barbara Houlihan  | $41.00             | $31.13           |
| Marcus Xavier     | $130.00            | $99.80           |

---

**References:**  
- [IRS Publication 15-T (2019)](https://www.irs.gov/pub/irs-prior/p15t--2019.pdf)  
- Pre-202 Form W-4 tables

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