© 2014 Cengage Learning. All Rights Reserved. Do Now: ●Are paying taxes a good thing or bad thing, in your opinion? ●Explain in detail, considering where they come from and what purpose they serve SLIDE 1

© 2014 Cengage Learning. All Rights Reserved. Last Class… ●Hang up definitions we recorded last class by taping papers around room ●Of the definitions we researched last class, which terms have significance when discussing what is subtracted from your paycheck? ●Walk around the room to find as many terms as possible and write them down so you can defend your reasoning SLIDE 2

© 2014 Cengage Learning. All Rights Reserved. Payroll Taxes ●Federal income tax withheld from employee earnings in all 50 states ●Must be sent periodically to respective government agencies ●Taxes based on the payroll of a business are called payroll taxes. ●Based on employee earnings ●Government assesses penalties for failure to pay correct payroll when due ●Liability of employer until paid SLIDE 3 Lesson 12-2 LO3

© 2014 Cengage Learning. All Rights Reserved. Employee’s Withholding Allowance Certificate ●A deduction from total earnings for each person legally supported by a taxpayer, including the employee, is called a withholding allowance. ●W-4 helps determine how much income tax to withhold from employee ●All employers must have for all employees ●Larger number of allowances claimed, smaller amount of income tax withheld SLIDE 4 LO3 Lesson 12-2

© 2014 Cengage Learning. All Rights Reserved. Employee’s Withholding Allowance Certificate SLIDE 5 LO3 Lesson 12-2 Name and Address 1 1 Marital Status 3 3 Social Security Number 2 2 Withholding Allowances 4 4 Signature and Date 5 5

© 2014 Cengage Learning. All Rights Reserved. Split the Room ●Do you believe all individuals should have to pay taxes, regardless of their situation? ●Explain your answers in detail, as this is a great topic for discussion SLIDE 6

© 2014 Cengage Learning. All Rights Reserved. Employee’s Withholding Allowance Certificate ●Exemption allowed for low-income and part- time employees ●Individuals cannot claim exemption from withholding if: 1.Income > $ and includes >$ unearned income 2.Another person can claim them as dependent SLIDE 7 LO3 Lesson 12-2

© 2014 Cengage Learning. All Rights Reserved. Employee’s Withholding Allowance Certificate ●Any amount withheld from an employee’s gross earnings is called a payroll deduction. ●Retirement plan contributions, health care premiums, and charitable donations also withheld ●Federal income tax laws written and passed by Congress ●IRS administers tax laws SLIDE 8 LO3 Lesson 12-2

© 2014 Cengage Learning. All Rights Reserved. Employee’s Income Tax Withholding—Single Persons SLIDE 9 LO3 Lesson 12-2

© 2014 Cengage Learning. All Rights Reserved. Employee’s Income Tax Withholding— Married Persons SLIDE 10 LO3 Lesson 12-2 Select the appropriate table 1 1 Locate employee’s total earnings 2 2 Intersection of earnings and withholding allowances 3 3

© 2014 Cengage Learning. All Rights Reserved. Give it a Try… ●Work Together 12-2, Federal Income Tax Withholding section only SLIDE 11

© 2014 Cengage Learning. All Rights Reserved. Employee Social Security and Medicare Tax ●Federal Insurance Contributions Act (FICA) established federal program for old-age, survivors, disability, and hospital insurance ●A federal tax paid for old-age, survivors, and disability insurance is called social security tax. SLIDE 12 LO4 Lesson 12-2

© 2014 Cengage Learning. All Rights Reserved. Employee Social Security and Medicare Tax ●A federal tax paid for hospital insurance is called Medicare tax. ●Both taxes paid by employees and employers ●Employers required to match taxes paid by employees ●Self-employed individual must pay both employee and employer tax SLIDE 13 LO4 Lesson 12-2

© 2014 Cengage Learning. All Rights Reserved. Employee Social Security and Medicare Tax ●Social security taxed on employee earnings up to maximum paid in given year ●The total gross earnings year to date for an employee is called accumulated earnings. ●The maximum amount of earnings on which a tax is calculated is called a tax base. ●When accumulated earnings and tax base are equal, no additional taxes need to be paid ●Congress sets tax rates and tax base SLIDE 14 LO4 Lesson 12-2

© 2014 Cengage Learning. All Rights Reserved. Calculations Social Security Tax Calculation ●Tax rate = 6.2% ●Taxed on maximum of $106,800 in earnings Total Earnings x Social Security Rate = Social Security Tax Deduction Medicare Tax Calculation ●Tax rate = 1.45% ●No maximum payment Total Earnings x Medicare Tax Rate = Medicare Tax Deduction SLIDE 15 Finish Work Together 12-2

© 2014 Cengage Learning. All Rights Reserved. Closure ●How is Social Security considered a Ponzi Scheme? SLIDE 16