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

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MBA, Section 2-3, Slide 2 of 16

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Section ObjectiveSection ObjectiveDetermine:

• State taxes on a graduated income basis

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MBA, Section 2-3, Slide 3 of 16

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graduated income tax (p. 122)

An income tax in which the tax rate increases at different levels of income.

Key Words to KnowKey Words to Know

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MBA, Section 2-3, Slide 4 of 16

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FormulaFormula

Tax Withheldper Pay Period =

Annual Tax WithheldNumber of Pay Periods per Year

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MBA, Section 2-3, Slide 5 of 16

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How many months do you think the average person works just to pay taxes?

Jack’s Jackpot p. 122Jack’s Jackpot p. 122

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MBA, Section 2-3, Slide 6 of 16

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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?

Example 1Example 1

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MBA, Section 2-3, Slide 7 of 16

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Figure 2.2Figure 2.2

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Find the taxable wages.

Annual Gross Pay – Personal Exemptions

$34,500.00 – $2,000.00 = $32,500.00

Example 1 Answer: Example 1 Answer: Step 1Step 1

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MBA, Section 2-3, Slide 9 of 16

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Find the annual tax withheld.

1. First $1,000: 1.5% of $ 1,000.00 = $ 15.00

2. Next $2,000: 3.0% of $ 2,000.00 = 60.00

3. Next $2,000: 4.5% of $ 2,000.00 = 90.00

4. 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

Example 1 Answer: Example 1 Answer: Step 2Step 2

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MBA, Section 2-3, Slide 10 of 16

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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

Example 1 Answer: Example 1 Answer: Step 3Step 3

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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?

Practice 1Practice 1

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MBA, Section 2-3, Slide 12 of 16

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$22,300

Practice 1 AnswerPractice 1 Answer

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MBA, Section 2-3, Slide 13 of 16

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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%

Practice 2Practice 2

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MBA, Section 2-3, Slide 14 of 16

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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..

Practice 2 (cont.)Practice 2 (cont.)

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MBA, Section 2-3, Slide 15 of 16

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$70.59

Practice 2 AnswerPractice 2 Answer

Graduated State Income TaxEND OF SECTION 2-3END OF SECTION 2-3