Page 245 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
• Deductions in effect prior to the tax garnishment notice,
which can include deductions for medical, life and disability
insurance, as well as cafeteria plan deductions

Once the applicable deductions have been used to reduce an employ-
ee’s wages to the amount to which the tax levy will be applied, the payroll
staff should use an IRS-supplied table to determine the amount of net
wages that are exempt from the tax levy.This table is shown in Exhibit 8.2.
Example. Molly Gammon has not been paying her federal income
taxes,so her employer,the Red Herring Fish Company,receives a notice
from the IRS, informing it that she owes the government $10,000 in
back taxes. The company is obligated to withhold this amount and
remit it to the IRS. The payroll manager must calculate the amount of

the tax levy to withhold from each paycheck. He obtains the following
information from her pay records:
Weekly salary $ 1,000
Federal and state income taxes 192
Social Security and Medicare taxes 77
Medical insurance deductions 40
Stock purchase plan deductions 50
Net Pay $ 641

To calculate the amount of her net pay that is exempt from the tax
levy, the payroll manager turns to the table for figuring exemptions,
shown in Exhibit 8.2. Molly is an unmarried head of household with
four exemptions. For a weekly pay period, this gives her an exemption

of $363.46 from the tax levy. This means that $277.54 is subject to the
tax levy, which is calculated as her net pay of $641, less the exemption
of $363.46.
If Molly subsequently asks to have her stock purchase plan deduc-
tions increased, the net change will not reduce her tax levy, since this

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