There are several methods of evaluating income tax withholding, there are:
All these methods can be used just knowing the information on an employee’s W-4, the Wage Bracket and Percentage Methods are enough to answer any question about withholding allowances on a construction business exam.
If your problem has more than 10 withholding allowances, then you must follow these steps instead:
Example 1: Use the wage bracket method to determine the income tax withholding for Craig Smith. He is married, gets paid weekly and makes $900 per week. On his W-4 form. He claims 4 withholding allowances. Solve using the 2016 circular E (Note that on your test, the answer will be looked on the circular E you are using. Your business book has within it a circular E excerpt)
Example 2: Use the Wage Bracket Method to determine the income tax withholding for Karl Smith. He is married, gets paid weekly and makes $1500 a week. On his W-4 form he claims 11 withholding allowances.
Example 3: Jim Beam gets paid $900 weekly and is unmarried. She has claimed two withholding allowances. Use the percentage method to calculate the amount to be withheld. Note that for this solution we will use numbers from the 2016 Circular E.
She makes $578 in excess of 222 (744.20 – 222 = 522.2)
17.90 plus 15% of 522.2
17.90 plus 78.33 = $96.23