Fundamental Payroll Certification (FPC) 2025 – 400 Free Practice Questions to Pass the Exam

The percentage method of withholding is a calculation used to determine the amount of federal income tax to be deducted from an employee's wages. This method applies a specified percentage to the employee's taxable wages, which typically involves using information from the employee's W-4 form regarding their filing status and allowances.

This method takes into account the employee's gross pay when determining the taxable income and applies the appropriate withholding rate as outlined in the IRS tax tables. Because the percentage method is standardized, it can be easily used for various pay periods and across different income levels.

In contrast, calculating total benefit contribution amounts, net pay, or gross wages involves different approaches and considerations. Benefit contributions depend on specific plans and are not calculated using the percentage method of withholding, while net pay is determined after all deductions and withholdings have been made, and gross wages refer to the total earnings before any deductions occur. Hence, the correct choice directly reflects the primary function of the percentage method in payroll calculations.