The percentage method aids in calculating
a)SUTA
B)FICA
C)FUTA
D)FIT
The percentage method is used to calculate the federal income tax (FIT) withholding from an employee's paycheck.
To calculate the FIT withholding using the percentage method, you need to follow these steps:
1. Obtain the employee's gross wages for the pay period. This is the total amount of money earned before any deductions.
2. Determine the employee's filing status and allowances. The filing status could be single, married filing jointly, married filing separately, or head of household. Allowances are based on the number of exemptions the employee is entitled to claim.
3. Refer to the current IRS withholding tables, which provide percentage values for each combination of filing status and allowance. These tables can be found in IRS Publication 15-T, or you can use the withholding calculator available on the IRS website.
4. Locate the appropriate table for the employee's pay frequency (e.g., weekly, biweekly, monthly) and taxable wages. The taxable wages are determined by subtracting any pre-tax deductions, such as contributions to retirement plans or flexible spending accounts, from the gross wages.
5. Find the intersection of the employee's filing status, allowances, and taxable wages in the withholding table. The table will provide a percentage value that represents the amount of federal income tax to withhold from the employee's paycheck.
6. Multiply the taxable wages by the percentage value to calculate the FIT withholding amount.
It's important to note that the percentage method is just one of several methods available to calculate FIT withholding. Employers can also use the wage bracket method or the annualized method, depending on their preference and the accuracy needed.