LESSON 12-2LESSON 12-2

Determining Payroll Tax Withholding

DEDUCTIONS FROM WAGESDEDUCTIONS FROM WAGES

Gross Pay – your pay before taxes Net Pay = your pay after deductions (taxes)

Amount employee actually receives Gross Wage – deductions = Net Pay

Payroll taxes: taxes based on the payroll of a business Owe the government the taxes on your behalf Is this an Asset, liability, or Owner’s Equity

Liability = owe money

EMPLOYEE PAYROLL TAXEMPLOYEE PAYROLL TAX

Taxes that are withheld from gross wage Employee Income Taxes

Federal Income Tax State, City and County taxes

Social Security Taxes Medicare Taxes

Businesses: Forward amount owed periodically to Federal Government

Calculated as a percentage of the pay check (gross)

EMPLOYEE INCOME TAXEMPLOYEE INCOME TAX

Federal Income Tax Withheld in all 50 states Amount withheld is based on

allowances claimed on W4Filing status (married or single)How often you get paid (monthly, weekly, etc….)Amount of employee’s Gross Wage

State, City and County taxes based on the same items

EMPLOYEE’S WITHHOLDING ALLOWANCE EMPLOYEE’S WITHHOLDING ALLOWANCE CERTIFICATE (W4)CERTIFICATE (W4)

Claim “0”

Withholding Allowance: deduction from total earnings for each person legally supported by a taxpayer, including the employee

Itemized in #5 of the W4 Determines amount deducted from each check More you claim, the less paid in taxes (not less you owe)

DETERMINE TAXESDETERMINE TAXES

What company withholds: If Married, paid Semi-monthly (2 times a month) , claimed

2 allowances with total earnings of $1137.00 Open text to page 347 & 348 Select Withholding form for marital status Find the Range in the left column that gross earnings falls between. Follow across to the number of allowances claimed on W4

EMPLOYEE’S INCOME TAX WITHHOLDING EMPLOYEE’S INCOME TAX WITHHOLDING – MARRIED PERSONS– MARRIED PERSONS

1. Select the appropriate table – Married or Single

If Married, with 2 allowances with total earnings of $1137.00

2. Find row where Earnings falls between

3. Move Across to row with allowances

- Grids Updated Yearly

PRACTICEPRACTICEExamples: If Single, paid Semi-monthly (2 times a month) , claimed 2 allowances with total earnings of $1137.00

Fed Tax: Soc. Sec. Tax Medicare Tax

If Married, paid Semi-monthly (2 times a month) , claimed 0 allowances with total earnings of $1885.00

Fed Tax: Soc. Sec. Tax Medicare Tax

If Married, paid Semi-monthly (2 times a month) , claimed 3 allowances with total earnings of $985.00

Fed Tax: Soc. Sec. Tax Medicare TaxIf Single, paid Semi-monthly (2 times a month) , claimed 0 allowances with total earnings of $1268.00Fed Tax: Soc. Sec. Tax Medicare Tax

If Single, paid Semi-monthly (2 times a month) , claimed 2 allowances with total earnings of $1080.00Fed Tax: Soc. Sec. Tax Medicare Tax

EMPLOYEE PAYROLL TAXESEMPLOYEE PAYROLL TAXES

Social Security Taxes Federal tax for old age, survivors, and disability Paid by both employees and employers at 12.4% of gross earnings

Employees pay 6.2% - withheld from paycheck Employers pay 6.2% - match employee contributions Tax Base: maximum amount of earnings on which a tax is calculated

Maximum amount of earnings for calendar year = 87,000 (in textbook)

Current Rates:

Medicare Taxes Federal tax for hospital insurance > 65 Paid by both employees and employers at 2.9% of gross earnings

Employees pay 1.45% of gross earnings (no tax base) Employers pay 1.45% - must match employee contributions

CALCULATE THE TAX RATECALCULATE THE TAX RATE

Calculate Social Security for gross wage of $1137 How much does employee pay?

70.494 rounded to $70.49

How much does the employer pay? 70.49

Total Social Security tax that employer pays government? 140.98

Calculate Medicare for gross wage of $1137 How much does employee pay?

16.4865 = round up to $16.49

How much does the employer pay? $16.49

Total Medicare tax that employer pays to government? $32.92

CALCULATE THE TAX RATECALCULATE THE TAX RATE

Calculate taxes on section in notes.

TERMS REVIEWTERMS REVIEW

payroll taxes withholding allowance social security tax Medicare tax tax base

ReviewReview

WTG 12-2