Question

The new Finance Manager, Rose Wilson, does not have experience with payroll and has requested that you explain how the statutory deductions are calculated.

Write a memo to Rose explaining what the statutory deductions consist of and by what methods they may be determined.

Answer 1

Statutory payroll deductions include:

• payroll taxes, federal income tax withholding of Publication 15
• Social Security tax of 6.20% upto the annual maximum taxable earnings.
• Medicare tax withholding of 1.45%,
• state income tax (if applicable) and
• local tax withholdings (if applicable) such as city, county, or school district taxes, and state disability.

An employee’s W-4 form is used to determine the federal income tax amount, which varies by employee. State income tax (if applicable) depends on the employee’s state income tax form and the state withholding tax tables. These are then used to determine statutory deductions. There are primarily two methods to determine witholdings and then deductions, Percentage method and Wages bracket method.

Hope this helps, let know if not. Thanks