FarmBooks User Guide

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  5. State Tax Calculations
  6. Standard State Calculation

Standard State Calculation

Standard State Calculation

If your state uses the following steps and methods for calculating state withholding along with only one deduction amount per allowance, no special tax calculation rule needs to be defined. However, the deduction amount and tax rate may change each year and would require changing those values. Thirteen states have gone to a flat tax and 8 states have no income tax. If your state uses a flat tax, then set both state single and state married to the same amount or use the employee filing status called “state rates” and setup a state rates table.

Step 1: Gross Pay – All Pre-Tax Amounts = Wages Paid.

Step2: Wages Paid * Number of Payroll Pay Periods = Annualized Wages Paid.

To annualized wages paid multiple by the number of payroll pay periods specified in employee setup.

Weekly   52 Bi-Weekly   26 Monthly   12 Semi-Monthly   24

Step 3: State Exemption Annual Amount * Number of Allowances = Standard Deduction Annual Amount.

State exemption annual amount multiplied by the number of allowances in employee state setup = the standard allowance deduction. It requires the annualized amount to be specified in the tax table for type “State Exemption”.

Step 4: Annualized Wages Paid – Standard Deduction Annual Amount = State Taxable Annual Amount.

Step 5: ((State Taxable Annual Amount – Bracket Excess Over Exemption Amount) * Tax Rate) + Base Tax = Annualized Amount to be Withheld

Lookup in the Rate Table via the State Taxable Annual Amount based on Martial Status (Single or Married) or by State Rate to get the Annualized amount to be withheld plus any base tax amount for that bracket.

Step 6: State Withholding Amount = Annualized Withholding Amount / Number of Payroll Pay Periods.

The state withholding amount is the annualized withholding amount divided by the number of payroll pay periods.