Q2007 - Paycheck Setup

I'm no expert.

Reading Intuit's mind is not easy to do. But one reason for not providing what you've asked for might be that not all deductions are computed by multiplying the current paycheck gross by a percentage. My girlfriend's deductions are not always the same from paycheck to paycheck, even when her paycheck gross is the same.

[As I understand what happens for deductions like taxes: your year-to-date gross is computed, then the tax you would owe on that ytd gross is computed. Then the tax you've already had deducted year-to-date is subtracted from the tax you owe year-to-date to determine how much to deduct for this paycheck. Better explanations welcomed.]

You are correct that there is no way to enter a percent to be applied to the paycheck "gross" to compute deductions. But Quicken split transactions do have the ability to compute the amounts of individual split lines by applying a percentage ... to the "net" amount of the transaction. [At it's heart, the transaction created by the Quicken Paycheck Wizard is just a Quicken split transaction ... with a "form" applied to make it easier to understand and work with.]

You're welcome to setup a test to see if that capability would help you.

[If you already have a test Quicken fileset, use that; if not, backup before testing.]

Select one of your existing register paycheck transactions, right-click, left-click on "Memorize payee". Answer "Yes" when asked if you want to "memorize split payees as percentages".

To test, try manually entering "new" paycheck transactions, providing just the payee and the "net" amount of the paycheck (use "net" amounts from existing paychecks to make verification easier). Quicken should (re-)compute ALL the split lines in the new test transactions, including the "gross", based on the "net" amount you provided.

[Transactions created this way will not be displayed in your register using the Quicken Paycheck Wizard "form": they will look just like other Quicken plain split transactions.]

Hi, John.

I really should let someone more familiar with the current rules and algorithms handle this, but maybe I can nudge the explanation a little closer to the actual procedure.

First, note that we are talking only Federal income tax withholding here. Social Security deductions (also known as FICA, for Federal Insurance Contributions Act, or OASDI, for Old Age, Survivors and Disability Insurance) are a straight percentage-of-gross-pay calculation, at least until you reach the annual limit. State withholding rules are too variable to discuss in a general national forum like this. And, of course, there's no way we can deal with 401(k) or other deductions here.

There are two basic approaches to determining the Federal income tax withholding amount. The first involves simply looking it up in a chart or "tax table". Use a different chart for each filing status (single, married filing jointly, etc.) and for each pay period (weekly, bi-weekly, semi-monthly or monthly), and number of exemptions. Then find the gross pay amount within brackets. No calculations involved; just find the number in the chart. No way to simply apply a percentage to gross pay because of the several non-percentage factors.

The other approach is close to what you said, John. The current month's gross pay is multiplied by 12 (or 52 or 26 or 24, as appropriate) to estimate the annual total income. This is reduced by amounts representing the Standard Deduction and personal exemptions (which is why we have to file the W-4 form each year to tell our employer how many exemptions we expect to be entitled to claim this year). This should leave a number representing an estimate of this year's expected "Taxable Income", which is NOT the same as Gross Income or even Adjusted Gross Income. Appropriate annual tax rates are applied to the expected annual Taxable Income to calculate the expected income tax for the full year. This tax amount is divided by 12 (or 52, 26 or 24) to arrive at the amount to be withheld from the current paycheck.

So there's no way to apply a simple percentage to the current gross pay. And there's no need to calculate the amount previously withheld and deduct it from a year-to-date tax amount. Each pay period stands on its on. Even if you didn't get a pay check until December, the calculation would assume that you had been paid at that rate for the whole year. (Something like that year-to-date calculation might be used to fine-tune estimated tax payments for taxpayers whose income is not from paychecks - interest, rents, capital gains, etc. - and who must write checks 4 times a year, before settling the final amount when they file their return next year. But it does not apply to withholding from paychecks.)

The concepts are not hard, but they are not really intuitive, either. And my explanation has intentionally glossed over the complications of the actual calculations. It was always easier to use the withholding tax tables, until computers (and programmers) got smart enough (and fast enough) to do all the required arithmetic every week.

As you said, John, the entry for each paycheck is really just a Split transaction in Quicken. My suggestion is like yours, I think: Make one entry, then Memorize it and use it again each payday, changing the amounts each time as necessary. (I would memorize the actual split amounts, not as percentages.) Not much different from recording interest income, which varies depending on whether the month has 30 or 31 days. When the pattern for the entry has been memorized, it takes only moments each time to change the amounts.

RC

Thanks - I'll look into that, at some point. :)

atd1999