How to Withhold Using the Cumulative Wages Method
Author: Alice Gilman
An employer must withhold federal income taxes from its employees' pay every pay period. The IRS provides several methods an employer may use to fulfill this duty. The percentage method of withholding is most commonly used by an employer with automated payroll systems and third-party payroll service providers. The percentage method withholding tables and worksheets are issued before a calendar year ends, to be used by employers in the following year. The percentage method withholding tables and worksheets are published in IRS Publication 15-T, Federal Income Tax Withholding Methods.
As of January 1, 2020, the new version of IRS Form W-4, Worksheet 1 and accompanying percentage method tables are intended to be used with automated payroll systems (although they may also be used with manual payroll systems). They may be used with both Form W-4 as of 2020 and the pre-2020 version of Form W-4.
Note: There are two additional worksheets and percentage method withholding tables:
- Worksheet 4, Employer's Withholding Worksheet for Percentage Method Tables for Manual Payroll Systems With Forms W-4 From 2020 or Later; and
- Worksheet 5, Employer's Withholding Worksheet for Percentage Method Tables for Manual Payroll Systems With Forms W-4 From 2019 or Earlier.
Certain employees, such as commission salespeople, may be overwithheld if their employer uses the regular percentage method tables without adjustment for the seasonal nature of an employee's job. These employees may request, in writing, that their employer use the cumulative wages withholding method. The cumulative wages method of withholding can only be used for employees who have regular pay periods.
This How To explains how to use the percentage method tables in conjunction with Worksheet 1 to determine withholding from the pay of an employee on a cumulative basis.