This is the time of year when people are completing their taxes and finding out if they owe money or are getting a refund. As a result, you may have employees who want to adjust their withholding. So let’s go to the Maintain menu and choose Employees/Sales Reps (or Employees, depending on your version of Peachtree). If you have set up employees, you already know that on the Withholding Info tab you can change their filing status or number of allowances. But many people overlook the Additional Withholding field on the same screen. Here you can enter an extra amount you want withheld from each paycheck. If an employee is trying to prevent owing taxes next year, it is much easier to add a specific amount to each paycheck than it is to calculate their pay with different numbers of allowances to get their withholding where they need it to be.
I also want to cover two other possible but less common situations. The first is an employee who is exempt from withholding. On the surface, it would seem like a good idea to remove the FIT calculation from the Employee Fields tab for that employee. But that creates big problems because the Payroll Tax Liability Report, 941, W-2, and some other payroll reports and forms only include wages that are associated the appropriate tax formula. And even though the employee is exempt, their wages still need to be reported. Instead, enter 99 for the number of federal allowances and their withholding will always be zero. In fact, when federal allowances are set to 99, even the additional withholding amount will be ignored.
The second situation is using a fixed amount for withholding. Usually when this comes up, it is the business owner. But it could be also requested by an employee that has significant additional sources of income that require more tax planning. For fixed withholding, enter 98 for the federal allowances and enter the amount to be withheld from each check as a positive number in the additional withholding field. This method works for federal withholding and most, but not all states.