Page 143 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
do not usually contribute their tip income back to the employer so taxes
can be withheld from it. If, by the tenth day of the following month
there are insufficient employee funds from which to withhold the des-
ignated amount of taxes, the employer no longer has to collect it. If
there are some employee funds on hand but not enough to cover all

taxes to be withheld, then the withholdings should be first for Social
Security and Medicare on all regular wages, then for federal income
taxes on regular wages, next for Social Security and Medicare taxes on
tips, and finally on income taxes for tips. Also, if the employer does not
have enough reportable wages for an employee to withhold the full
amount of required taxes, the employer must still provide the full
amount of matching taxes.

Example. Alice Mane is a waitress at the Bowers Café. In the past
month, she reported $390 in tip income, while her employer paid $120
in base wages.The Bowers Café needs to deduct the following amounts
from her total pay:
Tips Wages Total Income
Gross Pay $390.00 $120.00 $510.00

Federal income tax 78.00 24.00 102.00
Social Security 24.18 7.44 31.62

Medicare 5.66 1.74 7.40
Net Pay 282.16 86.82 368.98

The employer finds that the total withholdings on both tip and

wage income for Ms. Mane is $141.02. However, only $120 was paid
out as wages, so the entire $120 must be deducted. The first types of
taxes to be deducted from the $120 will be the Social Security and
Medicare taxes on her regular pay, which total $9.18 and leave $110.82
available for other taxes.Next in line are the federal income taxes on her
regular pay, which are for $24, leaving $86.82 available for other taxes.

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