Methods of Witholding - Annualizing Wages

An employer may annualize wage payments for federal withholding purposes. The annualizing method is advantageous for those employers wishing to conserve computer memory since only the rates, brackets, and exemption values for an annual payroll period are stored. Annualizing the wages and prorating the tax for the appropriate period arrive at the amount of federal tax to be withheld for any other payroll period.

Arithmetically, the employer:

(1) multiplies the amount of wages for one payroll period by the number of such periods in a year to determine the approximate total annual wages,

(2) computes the amount of federal withholding that would be required on this total annual wage amount, and

(3) divides the annual withholding by the number of payroll periods and withholds the resulting amount for each payroll period involved.

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