Alternative Withholding Methods: Income Tax Computations for Special Situations
Duration: 90 Minutes
In this training program, participants will learn how to compute the correct or target annual withholding to avoid underwithheld tax penalties, understand how to test employer designed withholding methods for compliance with IRS requirements, and learn to compute withholding using the four alternative methods provided by the IRS. The session will compare the percentage and wage bracket methods and the supplemental pay methods to the alternative methods.
Objectives of the Presentation
Why Should you Attend
- Know how to compute the "correct" or target annual withholding to avoid underwithheld tax penalties
- Test employer designed withholding methods for compliance with IRS requirements
- Compute withholding using the four alternative methods provided by the IRS
- Know how to use the alternative wage bracket and percentage method tables provided by the IRS
- Know which alternative methods may only be used if the employee requests that the method be used
- Identify which methods smooth out withholding when compensation varies from pay period to pay period
- Identify which methods soften the impact of a bonus payment on withholding without making changes to the W-4
Understanding the various methods that may be used to compute income tax withholding provides the payroll professionals with an opportunity to achieve greater accuracy in computing the amount to withhold from employee pay in special situations where application of the regular methods have a skewed result. Example situations include periodic bonus payments, commission payments that vary from pay period to pay period, and part year employment.
Topics covered include:
Who can Benefit
- The requirement to withhold and Form W-4 claims
- The percentage and wage bracket methods with an example of use of the daily or miscellaneous withholding tables
- Methods used to compute withholding on supplemental pay including examples
- Automated systems tables
- Annualized wage method - what it does, when and how to use it
- Average wage method - what it does, when and how to use it
- Cumulative wage method - what it does, when and how to use it
- Part year employment method - what it does, when and how to use it
- Other methods and maximum permissible deviations rules
- Non-resident alien withholding rules
- Payroll Supervisors and Personnel
- Payroll Consultants
- Payroll Service Providers
- Public Accountants
- Internal Auditors
- Tax Compliance Officers
- Enrolled Agents
- Employee Benefits Administrators
- Officers and Managers with Payroll or Tax Compliance Oversight
- Company / Business Owners
- Managers / Supervisors
- Public Agency Managers
- Audit and Compliance Personnel / Risk Managers.
The purpose of income tax withholding is to approximate the amount of the employee's tax for the year based on wage payments made during the year. The wage bracket and percentage methods are the primary methods used to compute withholding based on the employee's marital status and allowances claimed on Form W-4. Generally those methods work pretty well, but in some situations, they just don't seem to get the right result. The aggregate and optional flat rate methods used to compute withholding for supplemental wages often result in far too much or too little withholding. The IRS developed several alternatives to the traditional withholding methods designed to provide a closer estimate to the "correct" amount of withholding required to meet the employee's tax obligation. Employers may even design their own methods so long as the results fall within certain parameters.
This webinar will explore, in detail, these often overlooked methods and how they may be applied in situations where the regular methods just don't seem to work the way they should.