Calculation of Federal Employment Taxes


For Wages Paid Jan. 7, 2019 and Later

 

OASDI (Social Security) and Medicare Taxes

Wages for OASDI (Social Security) and Medicare are calculated by adding all earnings (including any taxable fringe benefits) less the following qualifying pre-tax deductions: insurance, parking, and UT FLEX. OASDI and Medicare taxes are calculated as follows:

  • Find OASDI - Taxable Wages on the payslip, and multiply by 6.2 percent. The OASDI Taxable Wages have a wage limit of $132,900 for the current tax year.
  • Find Medicare - Taxable Wages on the payslip. Multiply by 1.45 percent on wages up to $200,000. Multiply by 2.35 percent on wages above $200,000.

 

Federal Withholding Taxes

Federal Withholding Taxable Wages are calculated by adding all earnings (including any taxable fringe benefits) less all pre-tax deductions, and less any applicable 1042-S Wages. The tax rate(s) used in the calculation are specific to earnings being paid. Most payroll earnings use the IRS Percentage Method Tables for Income Tax; however, non-regular earnings, including but not limited to Awards, One-Time Merits, Relocation and Taxable Moving payments, use the Supplemental Wage flat rate of 22 percent.

IRS Percentage Method

To check your Federal Withholding Tax calculation when all earnings on the payslip use the IRS Percentage Method below.

Steps

  1. Find Federal Withholding – Taxable Wages on the payslip.
  2. Annualize this amount based on the pay period frequency: If Monthly, multiply by 12; if Semi-Monthly, multiply by 24.
  3. If you are a nonresident alien for tax purposes, with the exception of students from India, add $8,000.
  4. Find the Withholding section on the payslip. For each Allowance, subtract $4,200.
  5. Also from the Withholding section, find the Marital Status, go to the IRS ANNUAL Payroll Period table below, and use the appropriate left/right side of the table.
  6. Find the line that your amount falls into. Take your number, subtract the of excess over amount, multiply by the percentage reflected, and then add the dollar amount reflected in the third column.
  7. If a  Monthly pay period frequency, divide by 12; if Semi-Monthly, divide by 24.
  8. From the Withholding section of the payslip, if an Additional Withholding amount is reflected, add that number (if any). This should match the Federal Withholding Employee Taxes amount on this payment.

 

 

Supplemental Wage Method

When a payslip includes only Supplemental Wage earnings, multiply by 22 percent.

When a payslip includes earnings that are taxed using both methods (IRS Percentage and 22 percent Supplemental Wages) follow the steps below.

Steps

  1. Categorize the earnings into both types, and total each category.
  2. Allocate all the pre-tax deductions against both totals and subtract to arrive at two separate Federal Withholding – Taxable Wages amounts.
  3. Multiply the Supplemental earnings’ Federal Withholding – Taxable Wages by 22 percent.
  4. Follow the IRS Percentage Method steps above to calculate the Federal Withholding Tax amount for these earnings.
  5. Add the two Federal Withholding Tax amounts together to match against the total amount of Federal Withholding Taxes deducted on the payslip.

 

 

Last updated 1/7/2019