Andrew Sackville-West andrew at
Thu May 26 11:59:35 EDT 2005

Derek Atkins wrote:
> Quoting Thomas Bushnell BSG <tb at>:
>>Andrew Sackville-West <andrew at> writes:
>>>Seems to me there's really only a handful of ways to tax income:
>>>-- a flat % tax on all income (in US thats medicare)
>>>-- a flat % tax on a part of income (in US that's social security)
>>>-- a graduated % tax on all or part of income (US income tax)
>>>-- a unit price (?) tax on hours worked or some other non-income based
>>>value (in US, typically workers compensation -- my jurisdiction is
>>>some many $ per hour worked)
>>This is true, more or less.
>>The US withholding tables are just that: tables, which are sometimes a
>>little different than what formulas would produce.  Indeed, they don't
>>even have formulas.  Employers are required to withhold the amounts
>>listed in the tables, and that's that.
> Actually, they DO have formulas, but they are only used for amounts greater than
> $100k/year (or thereabouts).  However you are correct that when the amount
> falls into the table it is supposed to use the table value.  It would be useful
> to know how QB or other apps do it -- do they encode the tables themselves or
> just the formulae?

Actually, you're both wrong... :) The US has both tables and formulas. 
The tables are setup in $50 increments and the tax is rounded to the 
nearest $1 (can't remember) but you are also free to use the formulas, 
which give a more "precise" tax number. I believe the QB implements the 
tables, or uses a modified formula that emulates the tables.

When I used QB, all US federal withholding was rounded to the nearest 
dollar, which is also allowed. when I started using the formulas in my 
spreadsheet, I got, of course decimal results.

The reality, for US, is that for federal income tax, precision is not 
required because of the personal return filed at year end. Basically, 
you only have to withhold approximately the right amount. What is 
approximately right? depends on the auditor probably, and so some form 
of reasonable implementation of the tax tables is required.

The formulas are very straightforward and while ugly, are easy to implement.

Other parts of the federal tax code, especially social security and 
medicare require more precision than withholding because they are 
reconciled quarterly and must line up at the end of the year and there 
is no means to get extra ss or mcare money out of tax payers. These 
taxes must reconcile within a few pennies each quarter, or you must make 
adjusting transactions and fix it and still probably face penalties.

> -derek

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