REQUIRED DEDUCTIONS

Money subtracted from your gross pay for taxes by the government, also called payroll taxes:• Federal Taxes

• State Taxes

• FICA (Social Security and Medicare)

Calculating Federal Tax Deduction

Gross Pay x Federal Tax Rate = Federal Tax Deduction

•Johnny’s Gross Pay is $50.00

•Johnny’s Federal Tax Rate is 20%

•Johnny’s Federal Tax Deduction is $10.00

$50.00 x 20% = $10.00

$50.00 x .20 = $10.00

NEXT

Diligent David’s Gross Pay is $48.00

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Show me how to determine David’s federal tax deduction

The Federal Tax Rate is 20%

What is David’s Federal Tax Deduction?

David’s Federal Tax Deduction is

$9.60

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20% or .20 means

20¢ out of every dollar earned,

goes to Uncle Sam.

There are additional deductions to be subtracted from gross pay, let’s calculate State Taxes and FICA…

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

REQUIRED DEDUCTIONS

STATE TAXES•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.

Calculating State Tax Deduction

Gross Pay x State Tax Rate = 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

NEXT

Diligent David’s Gross Pay is $48.00

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check my answer

Show me how to determine David’s state tax deduction

The State Tax Rate is 18%

What is David’s State Tax Deduction?

David’s State Tax

Deduction is

$8.64

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There is one more deduction to be subtracted from gross pay, let’s learn about FICA…

18% or .18 means

18¢ out of every dollar earned,

goes to Uncle Sam.

} $8.64$48.00 x 18%

OR

$48.00 x .18

REQUIRED DEDUCTIONS

FICA•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)

Calculating FICA Deduction

Gross Pay x FICA Percentage = 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

Diligent David’s Gross Pay is $48.00

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Show me how to determine David’s FICA deduction

What is David’s FICA Deduction?

David’s FICA Deduction is

$3.67After all these deductions, is there any money left for me?

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$48.00 x 7.65% = $3.67

$48.00 x .0765 = $3.67

After all these deductions, is there any money left for me?

NET PAY = the money left after all deductions are subtracted from gross pay.

Gross Pay - Federal, State and FICA Deductions = Net Pay

•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

Calculating Net Pay:

the money after deductions, what you actually bring

home…..

What is Diligent David’s Net Pay?

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Show me how to determine 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

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.

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•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

David’s Net Pay

NEXT

David’s Net Pay =

$26.09

$48.00 - $9.60 - $8.64 - $3.67 = $26.09

Gross Pay - Federal Tax - State Tax - FICA = Net Pay

ReviewComputer Whiz Carl works at Circuit City.

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Show me how to determine Carl’s Net Pay

• 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?

Carl’s Net Pay is $56.11

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•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

Carl’s Net Pay

$90.00 - $18.00 - $9.00 - $6.89 = $56.11Carl’s Net Pay is $56.11