1. 2.1 F EDERAL I NCOME T AX FIT: (Federal Income Tax) is money withheld by employers. Required by law Amount is dependent on how much is made Taxes are used to keep government agencies and services running. Tax Table on Pg. 790 Carla’s gross pay for this week is $425.88. She is married and claims 2 allowances- herself and her husband. What amount will be withheld from her pay for FIT? Percentages: Tax Brackets Use Table 2.1 Allowances are given a specific amount. Calculations: Allowance Amount = # of allowances x Amount per allowance Taxable Wage = Weekly wage – Allowances Follow directions to tax withheld Find the amount withheld for a single person with one allowance, who has a weekly wage of $300.

2. 2.2 S TATE I NCOME T AX A percent of taxable wages in some states. A certain amount of pay. Taxable wages depend on personal exemptions, or withholding allowances, which allow for supporting yourself and your family. Calculations: Taxable Wages = Annual Gross Pay – Personal Exemptions Annual Tax Withheld = Taxable Wages x Tax Rate

3. 2.3 G RADUATED S TATE I NCOME T AX Used in some states. Involves a different tax rate for each level of income. Tax rate increases as income increases. Rate on low incomes is usually 1-3% and high incomes can be as much as 20%. Calculations: Tax Withheld Per Pay Period = Annual Tax Withheld Number of Pay Periods Louise’s annual salary is $34,500. She is paid semimonthly. Her personal exemptions total $2,000. How much does her employer deduct from each check for state income tax? State Tax : 1 st 1,000: 1.5% Next 2,000: 3% Next 2,000: 4.5% Over 5,000: 5% Find the taxable wages. Find annual tax withheld.

4. 2.4 S OCIAL S ECURITY AND M EDICARE T AXES Federal Insurance Contributions Act (FICA) Deduct 7.65% of your income. Social Security = 6.2% on the first $90,000 earned. Medicare = 1.45% on all earnings. Employer must contribute an amount equal to your contribution. Government uses social security to pay for retirement and disability benefits. Medicare is for health insurance for those 65+. Calculations: Tax Withheld = Gross Pay x Tax Rate Find your Social Security tax, Medicare tax, and total deduction if your earnings to date are $15,228 and your biweekly pay is $648.

5. 2.5 G ROUP H EALTH I NSURANCE Most employers offer group health insurance since it can be purchased for a lower cost than individual insurance. Businesses often pay for part of the cost with the employee paying the remainder. Employee’s amount is usually deducted each pay period. Calculations: Employee’s = Annual Amount x Employee’s Percentage Share Deduction Per = Total Annual Amount Paid by Employee Pay Period Number of Pay Periods Per Year Nicole has group medical through her employer. The annual cost of membership is $5,000. The company pays 75% of the cost. How much is deducted from her biweekly pay for medical insurance?

6. 2.6 S TATEMENT OF E ARNINGS May have other deductions taken out of gross pay for union dues, savings plans, contributions to community funds, etc. Earning Statement (Pay Stub) shows all deductions, your gross pay and your net pay. Net Pay: the amount left after all tax withholdings and personal deductions are subtracted. (Take home pay.) Calculations: Net Pay = Gross Pay – Total Deductions (Single use Pg.788. Married use Pg. 790) Example 1 Pg. 128 (will need table on Pg. 790) Deductions: Federal – Soc.Sec. – Medicare – State tax – Medical – Charity – Net Pay = 600 –