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State Income Tax Calculation Guide

Learn how to calculate state income tax using personal exemptions and tax rates, with examples and practice exercises.

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State Income Tax Calculation Guide

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  1. SECTION 2-2 pp.119-121 State Income Tax

  2. Section Objective Compute: • State taxes on a straight percent basis

  3. Key Words to Know personal exemptions (p. 119) The number of people an employee supports, on which taxes are based, also called withholding allowances.

  4. Formula 1 How do I calculate taxable wages Taxable Wages Personal Exemptions = Annual Gross Pay –

  5. Formula 2 How do I calculate annual taxes withheld? Annual Tax Withheld = Taxable Wages ×Tax Rate

  6. Jack’s Jackpot p. 119 Why do most states charge taxes?

  7. 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.

  8. Example 1 (cont.) Personal Exemptions Single: $2,000 Married: 4,000 Each Dependent: 2,000

  9. Example 1 Answer: Step 1 Find the taxable wages. Annual Gross Pay – Personal Exemptions $65,800.00 – $4,000.00 = $61,800.00

  10. Example 1 Answer: Step 2 Find the annual tax withheld. Taxable Wages ×Tax Rate $61,800.00 ×3% = $1,854.00

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

  12. Practice 1 Answer $4,000

  13. 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?

  14. Practice 2 Answer $3,900

  15. END OF SECTION 2-2 State Income Tax

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