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NET PAY NOTES

NEXT. What things are certain in life?. NET PAY NOTES. Death and Taxes. NEXT. Payroll Taxes – money taken from employee paychecks and given to government for income tax. Based on employee earnings. Paying income taxes as you earn. (Tax Freedom Day).

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NET PAY NOTES

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  1. NEXT What things are certain in life? NET PAY NOTES Death and Taxes

  2. NEXT Payroll Taxes –money taken from employee paychecks and given to government for income tax. Based on employee earnings. Paying income taxes as you earn. (Tax Freedom Day) Income Taxes – money paid to the government on any income you receive. Ideal Situation, The money owed for income taxes will equal the amount taken out pay for payroll taxes.

  3. NEXT • Money subtracted from your gross pay for taxes by the government, also called payroll taxes: • Federal Taxes • State Taxes • FICA (Social Security and Medicare) REQUIRED DEDUCTIONS

  4. NEXT FEDERAL TAXES REQUIRED DEDUCTIONS • The amount subtracted from gross pay for taxes is determined by the federal government and you through your allowances, W4. • It is a percentage of gross pay based on a person’s total wages and living situation (married, single, children, etc.). • The federal tax deduction is calculated referring to the appropriate tax table or by multiplying the government determined federal tax rate (from tax table) by gross pay.

  5. NEXT What is a W4? • Form that employers have you complete when you start a job, directs them how much to withhold, take out, of your paycheck for taxes. • ALLOWANCE – number that reduces the amount of money withheld from your pay. The more allowances you claim, the smaller the amount withheld. • You may complete a new W4 anytime.

  6. NEXT • Johnny’s Gross Pay is $50.00 • Johnny’s Federal Tax Rate is 20% • Johnny’s Federal Tax Deduction is $10.00 Calculating Federal Tax Deduction $50.00 x 20% = $10.00 $50.00 x .20 = $10.00 Gross Pay x Federal Tax Rate = Federal Tax Deduction

  7. I think I know, check my answer $35.00 Stressed-out Susie’s Gross Pay is: How many dollars are subtracted from her gross pay for federal taxes if the federal tax rate is 20%? Show me how to determine Susie’s Federal Tax Deduction

  8. Taxes are collected to pay for public services such as roads, parks, etc. That’s a lot of cash going to Uncle Sam! Click here is your answer was correct. Oops, I guess I need help. Click here. $7.00 Susie’s Federal Tax Deduction is

  9. NEXT Susie’s Federal Tax Deduction is $7.00 $35.00 x 20% = $7.00 $35.00 x .20 = $7.00 Gross Pay x Federal Tax Rate = Federal Tax Deduction

  10. I think I know, check my answer The Federal Tax Rate is 20% Diligent David’s Gross Pay is $48.00 What is David’s Federal Tax Deduction? Show me how to determine David’s federal tax deduction

  11. Click here is your answer was correct. Oops, I guess I need help. Click here. David’s Federal Tax Deduction is $9.60

  12. NEXT 20% or .20 means 20¢ out of every dollar earned, goes to Uncle Sam. } 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢+ 20¢ $9.60 There additional deductions to be subtracted from gross pay, let’s calculate State Taxes and FICA…

  13. NEXT STATE TAXES REQUIRED DEDUCTIONS • The amount subtracted from gross pay for taxes is determined by the state government. • It is a percentage of gross pay based on a person’s total wages and living situation (married, single, children, etc.). • The state tax deduction is calculated by multiplying the government determined tax rate by gross pay.

  14. NEXT Calculating State Tax Deduction • Johnny’s Gross Pay is $50.00 • Johnny’s State Tax Rate is 15% • Johnny’s State Tax Deduction is $7.50 $50.00 x 15% = $7.50 $50.00 x .15 = $7.50 Gross Pay x State Tax Rate = State Tax Deduction

  15. The State Tax Rate is 18% Diligent David’s Gross Pay is $48.00 What is David’s State Tax Deduction? I think I know, check my answer Show me how to determine David’s state tax deduction

  16. Click here is your answer was correct. Oops, I guess I need help. Click here. David’s State Tax Deduction is $8.64

  17. NEXT 18% or .18 means 18¢ out of every dollar earned, goes to Uncle Sam. } $48.00 x 18% OR $48.00 x .18 $8.64 There is one more deduction to be subtracted from gross pay, let’s learn about FICA…

  18. NEXT FICA REQUIRED DEDUCTIONS • FICA stands for Federal Insurance Contributions Act. This law was created to pay for Social Security and Medicare. • Social Security – Wages paid to retired people by the government based on how much they earned during their working years. • Medicare – Government sponsored health insurance for retired people. • The amount subtracted from gross pay for FICA is always at a rate of 7.65% (6.2% for Social Security and 1.45% for Medicare)

  19. NEXT Calculating FICA Deduction • Johnny’s Gross Pay is $50.00 • The FICA Rate is 7.65% • Johnny’s FICA Deduction is $3.83 $50.00 x 7.65% = $3.83 $50.00 x .0765 = $3.83 Gross Pay x FICA Percentage = FICA Deduction

  20. $35.00 Stressed-out Susie’s Gross Pay is: How many dollars are subtracted from her gross pay for FICA? Show me how to determine Susie’s FICA Deduction I think I know, check my answer

  21. Click here is your answer was correct. Oops, I guess I need help. Click here. $2.68 Someday you will be old too! Susie’s FICA Deduction is Why should I pay for old people?

  22. NEXT Susie’s FICA Deduction is $2.68 $35.00 x 7.65% = $2.68 $35.00 x .0765 = $2.68 Gross Pay x FICA Percentage = FICA Deduction

  23. Diligent David’s Gross Pay is $48.00 What is David’s FICA Deduction? I think I know, check my answer Show me how to determine David’s FICA deduction

  24. Click here is your answer was correct. Oops, I guess I need help. Click here. $3.67 David’s FICA Deduction is After all these deductions, is there any money left for me?

  25. NEXT $48.00 x 7.65% = $3.67 $48.00 x .0765 = $3.67

  26. NEXT After all these deductions, is there any money left for me? NET PAY, the money left after all deductions are subtracted from gross pay.

  27. NEXT Calculating Net Pay – the money after deductions, what you actually bring home….. • Johnny’s Gross Pay is $50.00 • Johnny’s Federal Tax Deduction is $10.00 • Johnny’s State Tax Deduction is $7.50 • Johnny’s FICA Deduction is $3.83 $50.00 - $10.00 - $7.50 - $3.83 = $28.67 Gross Pay - Federal, State and FICA Deductions = Net Pay

  28. How much does Stressed-out Susie actually bring home? • Her Gross Pay is $35.00 • Her Federal Tax Deduction is $7.00 • Her State Tax Deduction is $4.20 • Her FICA Deduction is $2.68 I think I know, check my answer Show me how to determine Susie’s Net Pay

  29. Click here is your answer was correct. Oops, I guess I need help. Click here. Susie will bring home $21.12

  30. NEXT $35.00 - $7.00 - $4.20 - $2.68 = $21.12 Gross Pay - Federal, State and FICA Deductions = Net Pay Susie will bring home $21.12

  31. What is Diligent David’s Net Pay? • His Gross Pay is $48.00 • His Federal Tax Deduction is $9.60 • His State Tax Deduction is $8.64 • His FICA Deduction is $3.67 I think I know, check my answer Show me how to determine David’s Net Pay

  32. Click here is your answer was correct. Oops, I guess I need help. Click here. David’s Net Pay is $26.09 He will have $26.09 to spend after all required deductions have been subtracted from his gross pay.

  33. NEXT David’s Net Pay • David’s Gross Pay is $48.00 • $8.00 x 6 hours = $48.00 • His Federal Tax Deduction is $9.60 • $48.00 x 20% = $9.60 • His State Tax Deduction is $8.64 • $48.00 x 18% = $8.64 • His FICA Deduction is $3.67 • $48.00 x 7.65% = $3.67

  34. NEXT Gross Pay - Federal Tax - State Tax - FICA = Net Pay $48.00 - $9.60 - $8.64 - $3.67 = $26.09 David’s Net Pay = $26.09

  35. Review • Carl worked 12 hours for an hourly rate of $7.50 • The Federal Tax Rate is 20% • The State Tax Rate is 10% • FICA is always 7.65% • What is Carl’s Net Pay? Computer Whiz Carl works at Circuit City. I think I know, check my answer Show me how to determine Carl’s Net Pay

  36. Click here is your answer was correct. Oops, I guess I need help. Click here. Carl’s Net Pay is $56.11

  37. NEXT Carl’s Net Pay • Carl’s Gross Pay is $90.00 • $7.5 x 12 hours = $90.00 • His Federal Tax Deduction is $18.00 • $90.00 x 20% = $18.00 • His State Tax Deduction is $9.00 • $90.00 x 10% = $9.00 • His FICA Deduction is $6.89 • $90.00 x 7.65% = $6.89 $90.00 - $18.00 - $9.00 - $6.89 = $56.11 Carl’s Net Pay is $56.11

  38. OTHER DEDUCTIONS • Health Insurance • Union Dues • 401(K) (often pre-tax) • Others? • PRE-TAX DEDUCTION – deduction is subtracted from gross pay before required tax deductions are taken. (Lowers your income to be taxed, or taxable income)

  39. FINAL REVIEW Please show all your work on a piece of paper and hand in to your teacher when done. Don’t forget your name! • Angie the Accountant worked 32 hours for an hourly rate of $18.25 • The Federal Tax Rate is 18% • The State Tax Rate is 15% • She also has $4.00 per week taken out for 401(k) and $2.00/wk for health ins. How much money does Angie actually take home? (her net pay)

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