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The following section will explain in detail how 'Cumulative' works. The acronym YTD used in this option means year-to-date, and will include payments or deductions for the current year, but will exclude the payment payable now and the deductions for the current pay period. The tax values used in this example are fictitious.
Calculation of Income
For 'Cumulative', the actual YTD income plus the current income is projected over the remaining pay periods in the year. For example, an employee received $20,000 total in 20 previous pay periods and $500 in the current pay period, and there are 5 pay periods remaining. The projected income for the year using 'Cumulative' will be $25,380.95 [($20,000 + $500) × 26 / 21]. When you calculate tax cumulatively, you calculate the tax on the projected income for the year, then find the tax amount that is proportional to the number of pay periods that have actually occurred (including the current pay period). Compare the result to the tax actually deducted in the year-to-date. The difference is the tax payable on the current income.
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