Take-Home Pay

1. Take-Home Pay The deductions taken out of your paycheck help support schools, roads, national parks, and more. Why do you think you have to pay taxes?

2. Lesson Objective Determine the amount withheld for federal income tax. Content Vocabulary federal income tax Money withheld by an employer from an employee’s paycheck to pay federal government taxes. withholding allowance The number of people an employee supports, which helps employers know how much money to withhold for federal income tax. • federal income tax • withholding allowance

4. Example 1 Carla Garza’s gross pay for this week is $425.88. She is married and claims 2 allowances—herself and her husband. What amount will be withheld from Garza’s pay for FIT?

5. Example 1 Answer Steps: 1. Find the income range from the federal tax tables on pages 788-791 in your textbook. 2. Find the column for 2 allowances. 3. The amount of income to be withheld is $19.

6. Example 2 Lance Han’s gross pay for this week is $386.88. He is married and claims 1 allowance. What amount will be withheld from Han’s pay for FIT?

7. Example 2 Answer Steps: 1. Find the income range from the federal tax tables on pages 788-791 in your textbook. 2. Find the column for 1 allowance. 3. The amount of income to be withheld is $31.

8. Practice 1 Use the tax tables on pages 788-791 in your texbook to find the amount withheld. Joseph Napoli, single. Earns $524 per week. Claims 2 allowances. What is the FIT withheld?

9. Practice 1 Answer $48

10. Practice 2 Use the tax tables on pages 788-191 in your textbook to find the amount withheld. Amanda Hagel earns $476 a week. She is married and claims 2 allowances. Next year she will have a child and will claim an additional allowance. How much less will be withheld for federal income tax next year?

11. Practice 2 Answer $312

12. Lesson Objective Compute state taxes on a straight percent basis. Content Vocabulary exemption Withholding allowances, which allow for supporting yourself, your spouse, and others in your family who are your dependents. • exemption

14. Example 1 Patricia Line’s gross pay is $65,800 a year. The state income tax rate is 3 percent of taxable wages. Line takes a married exemption for herself and her husband. Use the Personal Exemptions table below to find out how much is withheld from her gross earnings for state income tax within the year.

15. Example 1 (cont.) Personal Exemptions Single: $1,500 Married: 3,600 Each Dependent: 700

16. Example 1 Answer: Step 1 Find the taxable wages. Annual Gross Pay – Personal Exemptions $65,800.00 – $3,000.00 = $62,800.00

17. Example 1 Answer: Step 2 Find the annual tax withheld. Taxable Wages ×Tax Rate $62,800.00 ×3% = $1,884.00

18. Practice 1 Use the Personal Exemptions table in Example 1 above to find the amount withheld. Tomoko Nakazawa. Earns $38,657 annually. Married, no dependents. What are her personal exemptions?

19. Practice 1 Answer $3,000

20. Practice 2 Paul Chamello earns $168,000. He is single. His personal exemptions include himself and his five children. The state tax rate is 2.5 percent of taxable income. What amount is withheld yearly for state income tax?

21. Practice 2 Answer $4,075

22. Lesson Objective Determine state taxes on a graduated income tax basis. Content Vocabulary graduated income tax A system that increases the tax rate at different levels of income. • graduated income tax

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

25. Figure 2.2

26. Example 1 Answer: Step 1 Find the taxable wages. Annual Gross Pay – Personal Exemptions $34,500.00 – $1,500.00 = $33,000.00

27. 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 ($33,000.00 – $5,000.00) • 5.0% of $28,000.00 = 1,400.00 • Total $1,565.00

28. Example 1 Answer: Step 3 Find the tax withheld per pay period. Annual Tax Withheld ÷Number of Pay Periods per Year $1,565.00 ÷24 = $65.208 or $65.21

29. Practice 1 Patricia Hanson. Annual gross pay of $24,300. Personal exemption of $1,500. 2 percent state tax on first $5,000. 3 percent state tax on amount over $5,000. What is her taxable income?

30. Practice 1 Answer $22,800

31. 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%

32. Practice 2 (cont.) Caroline Pollack’s gross pay is $31,452. She has personal exemptions of $3,600. How much is withheld from her semimonthly paycheck for state income tax? Round to the nearest cent.

33. Practice 2 Answer $71.76

34. Lesson Objective Compute the amount withheld for Social Security and Medicare taxes. Content Vocabulary Social Security A federal government program to pay for retirement and disability benefits. Medicare A federal government program to provide medical insurance. • Social Security • Medicare

36. Example 1 Otis Hassan’s gross biweekly pay is $648.00. His earnings to date for the year total $15,228. What amount is deducted from his pay this week for Social Security? For Medicare? What is the total deduction?

37. Example 1 Answer: Step 1 Find the Social Security tax withheld. Gross Pay ×Tax Rate $648.00 ×6.2% = $40.176 = $40.18

38. Example 1 Answer: Step 2 Find the Medicare tax withheld. Gross Pay ×Tax Rate $648.00 ×1.45% = $9.396 or $9.40

39. Example 1 Answer: Step 3 Find the total deduction. Social Security Tax +Medicare Tax $40.18 + $9.40 = $49.58

40. Practice 1 Find the Social Security and Medicare taxes withheld for this pay period. Tom Mendoza. Monthly salary $4,800. $52,800 earned this year to date. How much deducted this pay period for Social Security? For Medicare?

41. Practice 1 Answer For Social Security: $297.60 For Medicare: $69.60

42. Practice 2 Stephanie Metcalf earns $91,992 a year. Her salary is paid monthly. What are her year-to-date earnings for November? How much is deducted from her check in November for Social Security? For Medicare? How much is deducted from her check in December for Social Security? For Medicare?

43. Practice 2 Answer Year-to-date earnings for November: $84,326 Social Security deduction in November: $475.29 Medicare deduction in November: $111.16 Social Security deduction in December: $35.59 Medicare deduction in December: $111.16

44. Assignment -

45. Lesson Objective Calculate the deduction for group insurance. Content Vocabulary Social Security A federal government program to pay for retirement and disability benefits. group insurance Health insurance offered by many businesses to employees, pain in part by the business and in part by the employee. • group insurance

47. Example 1 Lawrence Butler has family medical coverage through the group medical plan his employer provides. The annual cost of the plan is $4,500. The company pays 80 percent. How much does Butler pay annually?

48. Example 1 Answer: Step 1 Find the percent paid by employee. 100% – Percent Company Pays 100% – 80% = 20%

49. Example 1 Answer: Step 2 Find the total amount paid by employee. Annual Amount ×Employee’s Percent $4,500 × 20% = $900.00

50. Example 2 Nicholette McClure has family medical coverage through the group medical plan her employer provides. The annual cost of the plan is $5,000. The company pays 75 percent. How much is deducted from her biweekly paycheck for medical insurance?