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Payroll Deductions

Learn how to calculate Social Security, Medicare, federal income tax, and state withholding using percentage and wage bracket methods. Understand key concepts like FICA, taxable earnings, and W-4 forms for accurate payroll management.

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Payroll Deductions

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  1. Payroll Deductions CONT 110

  2. Terms you will use • Accumulated Earnings • Employee’s Earnings Record • Employee’s Withholding Allowance Certificate • Federal Income Tax (FIT) • Federal Insurance Contributions Act (FICA) • Net Pay • Payroll Register • Percentage Method • Pre-Tax Deductions • State and Local Income Tax Withholding • Taxable Earnings • Wage Bracket Method

  3. Calculate Social Security and Medicare withholding • 2010 FICA rates: • Social Security wage base as January 2010 - $106,800 • Maximum social security an employee would pay in 2010 - $6,622 ($106,800 * 6.2%) • Medicare has no wage base (all wages are subject to the 1.45% tax) • Employers must match the amount of FICA tax deducted from each employee’s wages.

  4. Calculate Social Security and Medicare withholding • For Social Security tax, multiply gross earnings per pay period times 6.2% on the first $106,800 earned. • For Medicare tax, multiply gross earnings per pay period times 1.45% • Social Security tax plus Medicare tax equals FICA withheld

  5. Find the federal income tax withholding using the percentage method • Requires fewer tables to calculate the federal taxes

  6. Find the federal income tax withholding using the percentage method

  7. Find the federal income tax withholding using the percentage method • Frank Rodriguez, married, claims for withholding allowances, and has weekly gross earnings of $1,230

  8. Find the federal income tax withholding using the wage bracket method • Based on a person’s total gross earnings, marital status, and number of allowances claimed • Form W-4 (Employee’s Withholding Allowance Certificate) • Withholding Tax Table

  9. Find the state income tax withholding • Seven states do not have state income tax • Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming • State income tax is collected by withholding • Example: • Terri Adams has gross earnings for the month of $3,100. If her state has a 4.5% income tax rate, find the state withholding tax. • $3,100 X 0.045 = $139.50

  10. Find the amount paid to the Internal Revenue Service (IRS) each payroll tax period • Each payroll period employers send to the IRS the amount of employee’s Social Security withheld, a matching amount, and the amount of federal income tax withheld from employee’s gross pay.

  11. Ejercicio de práctica 1. Entre la fórmula para calcular las deducciones por Seguro Social y copiela a las celdas correspondientes 2. Entre la fórmula para hallar las deducciones por Medicare 3. Utilice la tabla del Wage Bracket Method para calcular el impuesto federal 4. Escriba la fórmula necesaria para calcular el impuesto estatal

  12. Referencia bibliográfica • “Business Math using Excel”, Burton / Shelton, South-Western

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