1. 10-70

2. Payroll Computations, Records, and Payment Section 2: Calculating Earnings and Taxes Chapter 10 Section Objectives 2.Compute gross earnings of employees. 3.Determine employee deductions for social security tax. 4.Determine employee deductions for Medicare tax. 5.Determine employee deductions for income tax. 6.Enter gross earnings, deductions, and net pay in the payroll register. McGraw-Hill© 2007 The McGraw-Hill Companies, Inc. All rights reserved.

3. 10-72 Withholdings for Hourly Employees Required by Law

4. 10-73 Withholdings for Hourly Employees Required by Law FICA (social security) tax Medicare tax Federal income tax withholding Recall that federal law requires employers to make three deductions from employees’ gross pay:

5. 10-74 Objective 3 Determine employee deductions for social security tax.

6. 10-75 Tax-exempt wages are earnings in excess of the base amount set by the Social Security Act. ANSWER: QUESTION: What are tax-exempt wages?

7. 10-76 Earnings in excess of the base amount ($90,000 as of 2005) are not subject to FICA withholding. If an employee works for more than one employer during the year, the FICA tax is deducted and matched by each employer. When the employee files a federal income tax return, any excess FICA tax withheld from the employee’s earnings is refunded by the government or is applied to payment of the employee’s federal income taxes. Tax-exempt Wages

8. 10-77 To determine the amount of social security tax to withhold, multiply the taxable wages by the social security tax rate and round off to the nearest cent. Social Security Tax Cindy Taylor $400.00 X 6.2% =$24.80 Jorge Rodriguez 380.00 X 6.2% = 23.56 George Dunlap 427.50 X 6.2% = 26.51 Cecilia Wu 560.00 X 6.2% = 34.72 EmployeeGross payTax rate Tax Total social security tax $109.59

9. 10-78 Thank You for using College Accounting, 11th Edition Price Haddock Brock