How are Federal taxes calculated?

Federal taxes are calculated within the iSolved system using the percentage method outlined by the IRS in the annual publication 15.

https://www.irs.gov/pub/irs-pdf/p15.pdf

An example of calculating Federal taxes is as follows:

An employee earns a gross weekly income of $1200.  They pay $40.00 per week for pretax health insurance and contribute $100 to their 401K.  They claimed married with 2 exemptions on their 2018 W-4.

You will begin by determining the Federal taxable wages.  This is the gross pay minus any pretax deductions.  In this case, the medical insurance and 401K amounts. 

$1200-$140=$1060

Next, the withholding allowance is subtracted.  The weekly allowance for 2018 is $79.80.  Since our employee is claiming 2 exemptions, we will subtract $159.60 ($79.80x2).

$1060-$159.60=$900.40 This is the dollar amount that Federal tax will be calculated on.

From here, the percentage method tables are used.  The tables are based on frequency and marital status.  For our example, we will use the Weekly-Married table.

To use the table, find the bracket that your taxable amount belongs in.  For us, it is the second bracket-Over $588 but not over $1711.  Next, you will follow the instructions on the table. 

X= $36.60 + 12%*($900.40-$588)

X= $36.60+12%*312.40

X= $36.60+37.48

X=$74.08