Understanding Graduated State Income Tax

1. SECTION 2-3 pp. 122-123 Graduated State Income Tax

2. Section Objective Determine: • State taxes on a graduated income basis

3. Key Words to Know graduated income tax (p. 122) An income tax in which the tax rate increases at different levels of income.

4. Formula Tax Withheld per Pay Period Annual Tax Withheld = Number of Pay Periods per Year

5. Jack’s Jackpot p. 122 How many months do you think the average person works just to pay taxes?

6. Example 1 Louise Maffeo’s annual salary is $34,500. She is paid semi-monthly. Her personal exemptions total $2,000. How much does her employer deduct from each of Maffeo’s semi-monthly paychecks for state income tax?

7. Figure 2.2

8. Example 1 Answer: Step 1 Find the taxable wages. Annual Gross Pay – Personal Exemptions $34,500.00 – $2,000.00 = $32,500.00

9. Example 1 Answer: Step 2 • Find the annual tax withheld. • First $1,000: 1.5% of $ 1,000.00 = $ 15.00 • Next $2,000: 3.0% of $ 2,000.00 = 60.00 • Next $2,000: 4.5% of $ 2,000.00 = 90.00 • Over $5,000: 5.0% of ($32,500.00 – $5,000.00) • 5.0% of $27,500.00 = 1,375.00 • Total $1,540.00

10. Example 1 Answer: Step 3 Find the tax withheld per pay period. Annual Tax Withheld ÷Number of Pay Periods per Year $1,540.00 ÷24 = $64.167 or $64.17

11. Practice 1 Patricia Hanson. Annual gross pay of $24,300. Personal exemption of $2,000. 2 percent state tax on first $5,000. 3 percent state tax on amount over $5,000. What is her taxable income?

12. Practice 1 Answer $22,300

13. Practice 2 Use the following tax table to find the amount of state tax withheld. First $3,500 3% Next $3,500 4.5% Over $7,000 7%

14. Practice 2 (cont.) Caroline Pollack’s gross pay is $31,452. She has personal exemptions of $4,000. How much is withheld from her semimonthly paycheck for state income tax? Round to the nearest cent.

15. Practice 2 Answer $70.59

16. END OF SECTION 2-3 Graduated State Income Tax