Publication 15a |
2000 Tax Year |
Chapter 10 Alternative Methods for Figuring Withholding
You may use various methods of figuring income tax withholding. The
methods described below may be used instead of the common payroll
methods provided in Circular E. Use the method that best suits your
payroll system and employees.
Annualized wages.
Using your employee's annual wages, figure the withholding using
the Percentage Method, Table 7-Annual Payroll Period, in
Circular E. Divide the amount from the table by the number of payroll
periods, and the result will be the amount of withholding for each
payroll period.
Average estimated wages.
You may withhold the tax for a payroll period based on estimated
average wages, with necessary adjustments, for any quarter. For
details, see Regulations section 31.3402(h)(1)-1.
Cumulative wages.
An employee may ask you, in writing, to withhold tax on cumulative
wages. If you agree to do so, and you have paid the employee for the
same kind of payroll period (weekly, biweekly, etc.) since the
beginning of the year, you may figure the tax as follows:
Add the wages you have paid the employee for the current calendar
year to the current payroll period amount. Divide this amount by the
number of payroll periods so far this year including the current
period. Figure the withholding on this amount, and multiply the
withholding by the number of payroll periods used above. Use the
percentage method shown in Circular E. Subtract the total withholding
calculated from the total tax withheld during the calendar year. The
excess is the amount to withhold for the current payroll period. (See
Rev. Proc. 78-8, 1978-1 C.B. 562, for an example of the cumulative
method.)
Part-year employment.
A part-year employee who figures income tax on a calendar-year
basis may ask you to withhold tax by the part-year employment method.
The request must be in writing and must contain the following
information:
- The last day of any employment during the calendar year with
any prior employer.
- A statement that the employee uses the calendar year
accounting period.
- A statement that the employee reasonably anticipates he or
she will be employed for a total of no more than 245 days in all
terms of continuous employment (defined below) during the
current calendar year.
Complete the following steps to figure withholding tax by the
part-year method:
- Add the wages to be paid to the employee for the current
payroll period to any wages you have already paid the employee in the
current term of continuous employment.
- Add the number of payroll periods used in step 1 to the
number of payroll periods between the employee's last employment and
current employment. To find the number of periods between the last
employment and current employment, divide (a) the number of calendar
days between the employee's last day of earlier employment (or the
previous December 31, if later) and the first day of current
employment by (b) the number of calendar days in the current payroll
period.
- Divide the step 1 amount by the total number of payroll
periods from step 2.
- Find the tax in the withholding tax tables on the step 3
amount. Be sure to use the correct payroll period table and to take
into account the employee's withholding allowances.
- Multiply the total number of payroll periods from step 2 by
the step 4 amount.
- Subtract from the step 5 amount the total tax already
withheld during the current term of continuous employment. Any excess
is the amount to withhold for the current payroll period.
(See Regulations section 31.3402(h)(4)-1(c)(4) for examples of
the part-year method.)
Term of continuous employment.
A term of continuous employment may be a single term or two or more
following terms of employment with the same employer. A continuous
term includes holidays, regular days off, and days off for illness or
vacation. A continuous term begins on the first day an employee works
for you and earns pay. It ends on the earlier of the employee's last
day of work for you or, if the employee performs no services for you
for more than 30 calendar days, the last workday before the 30-day
period. If an employment relationship is ended, the term of continuous
employment is ended, even if a new employment relationship is
established with the same employer within 30 days.
Other methods.
You may use other methods and tables for withholding taxes, as long
as the amount of tax withheld is consistently about the same as it
would be under the percentage method shown in Circular E. If you
develop an alternative method or table, you should test the full range
of wage and allowance situations to be sure that they meet the
tolerances contained in Regulations section 31.3402(h)(4)-1 as shown
in the chart below.
Table
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