Re: Payroll Tax question

From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Payroll Tax question
Date: Mon, 11 May 1998 00:46:19 -0400

Next Article (by Author): RE: Online Trading Rick.Schafer@bdk.com
Previous Article (by Author): Re: Calling card calls Rich Carreiro
Next in Thread: Payroll Tax question "J.D. Baldwin"
Articles sorted by: [Date] [Author] [Subject]

>vacation check from the old company. I looked at it and compared it with the
>old regular paycheck. What I found was they actually took straight 28% out of
>my vacation check for fed and 6% for State (Calif). While on the regular check

That's pretty standard.  Separate checks get hit with the flat 28%
withholding for fed, and many companies use a flat 6% withholding for
state on such checks.

>they used Method B of payroll deduction (from IRS Publication 15) which
>came out to be less taxes. They did take out Social Sec, Medicare, CA SDI and
>the percentages are correct. The fed & state figures are questionable.

That's because FICA and Medicare are intrinsically flat taxes, so there
is only one rate to use.

>As an example, a check for $900 shouldn't really have $250 taken out for
>Federal tax, while a check for $1000 (arbitrary regular paycheck amt) only

Yes it should, because the rule says so.

>have about $160 taken out, should it?? Am I getting ripped off here? Is it

No.  Remember, don't confuse withholding with tax liability.
Withholding is merely a pre-payment of taxes on the income.  They have
nothing to do with each other.  Your tax is based solely on the
taxable pay.  When you file your return you work through and compute
your taxable income and then your tax.  You then subtract out your
tax payments made during the year to figure out what if anything you
owe on April 15.  *That's* where the withholding comes in.  So if
the tax on the vacation check was "too much", the amount you have to
pay on April 15 will be less than it would have otherwise been (or
your refund will be bigger than it otherwise would have been).

>normal for companies to use diferent formula to deduct taxes out of a vacation

Yes.

>check? Is it supposed to be 28%?

Yes.

Rich Carreiro
rlcarr@animato.pn.com
P5-100/RedHat Linux 4.1

- -

Go to Jeff Salisbury LWGate Home Page.