Page 208 - Essentials of Payroll: Management and Accounting

Payr oll Taxes and Remittances
• Basis is year-to-date cumulative wages. This method can only be
used at an employee’s written request. To calculate it, compile
all wages paid to the employee for the year-to-date through
and including the current pay period, and divide the sum by
the total number of year-to-date pay periods, including the
current period. Then use the percentage method to calculate
the withholding on this average wage. Multiply the withholding
amount by the total number of year-to-date payroll periods,
and subtract the actual amount of withholdings made year-
to-date. The remainder is the amount to withhold from the
employee’s wages during the current pay period.
This complicated approach is requested by employees who
may have had an excessive amount of taxes withheld from
their pay earlier in the year, perhaps due to a large commis-
sion or bonus payment that bumped them into a higher
income tax bracket. By using the cumulative wages calcula-
tion, these excessive withholdings may sometimes result in a
one-time withholding on the payroll in which this calculation
is requested that is much smaller than usual.

Supplemental Pay

Several of the alternative tax calculation methods just described are
used because the amount withheld from employee pay for the year-to-
date is higher than will be needed by the end of the calendar year.This
may be caused by a large payment to an employee earlier in the year,
perhaps a commission or bonus; when this happens, the extra payment
is typically lumped into the person’s regular pay, which bumps the per-
son into a higher tax bracket on the assumption that he or she always
receives this amount of money during every pay period. As a result,

there will be an excessively large withholding at the end of the year,
and the employee will receive a tax refund.

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