NEXT

Death and Taxes

NET PAY NOTES

What things are certain in life?

Income Taxes – money paid to the government on any income you receive.

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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)Ideal Situation,The money owed for income taxeswill equal the amount taken out pay for payroll taxes.

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) NEXT

REQUIRED DEDUCTIONS

FEDERAL TAXES•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.

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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.

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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

Stressed-out Susie’s Gross Pay is:

$35.00

Show me how to determine Susie’s Federal Tax DeductionI think I know,

check my answer

How many dollars are subtracted from her gross pay for federal taxes if the federal tax rate is 20%?

Susie’s Federal Tax Deduction is

$7.00Taxes are collected to pay for public services such as roads, parks, etc.

Oops, I guess I need help.

Click here.

Click here is your answer was correct.

That’s a lot of cash going to Uncle Sam!

Susie’s Federal Tax Deduction is $7.00

Gross Pay x Federal Tax Rate = Federal Tax Deduction

$35.00 x 20% = $7.00

$35.00 x .20 = $7.00

NEXT

Diligent David’s Gross Pay is $48.00

I think I know,

check my answer

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

Click here is your answer was correct.

Oops, I guess I need help.

Click here.

20% or .20 means

20¢ out of every dollar earned,

goes to Uncle Sam.

There 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

NEXT

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.

NEXT

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

I think I know,

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

Click here is your answer was correct.

Oops, I guess I need help.

Click here.

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

NEXT

$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.

NEXT

•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

NEXT

Stressed-out Susie’s Gross Pay is:

$35.00

Show me how to determine Susie’s FICA DeductionI think I know,

check my answer

How many dollars are subtracted from her gross pay for FICA?

Susie’s FICA Deduction is

$2.68Why should I pay for old people?

Someday you will be old too!

Click here is your answer was correct.

Oops, I guess I need help.

Click here.

Susie’s FICA Deduction is $2.68

Gross Pay x FICA Percentage = FICA Deduction

$35.00 x 7.65% = $2.68

$35.00 x .0765 = $2.68

NEXT

Diligent David’s Gross Pay is $48.00

I think I know,

check my answer

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?

Oops, I guess I need help.

Click here.

Click here is your answer was correct.

$48.00 x 7.65% = $3.67

$48.00 x .0765 = $3.67

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.

NEXT

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…..

NEXT

•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

How much does Stressed-out Susie actually bring home?

I think I know,

check my answer

Show me how to determine Susie’s Net Pay

Susie will bring home $21.12

Click here is your answer was correct.

Oops, I guess I need help.

Click here.

$35.00 - $7.00 - $4.20 - $2.68 = $21.12Gross Pay - Federal, State and FICA Deductions = Net Pay

Susie will bring home

$21.12

NEXT

What is Diligent David’s Net Pay?

I think I know,

check my answer

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.

Oops, I guess I need help.

Click here.

Click here is your answer was correct.

•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

NEXT

ReviewComputer Whiz Carl works at Circuit City.

I think I know,

check my answer

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

Click here is your answer was correct.

Oops, I guess I need help.

Click here.

•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 = $56.11

Carl’s Net Pay is $56.11 NEXT

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)

FINAL REVIEWPlease 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)