1. Chapter 2
Net Income

2. CONGRATULATIONS!!!
Congrats on your brand new job at BURGERWORLD!

3. Section 2.1 – Federal Income Tax
When you start a new job, you must fill out IRS Form W4 and give it to your employer
Helps your employer determine how much to withhold from your paycheck in taxes

4. What is Federal Income Tax?
Federal Income Tax is money withheld by an employer from an employee’s paycheck to pay federal government taxes.
These taxes are needed to keep the government agencies and services afloat.
The Internal Revenue Service (IRS) provides employers with tables that show how much money to withhold.

5. The amount of money withheld depends on two things:
FIT (continued)
The amount of money withheld depends on two things:
The amount of money you earn
The information you give your employer on Form W-4

6. Form W-4 With each job, a new employee must fill out a Form W-4
Three types of info required:
Whether to withhold at the single rate or at the lower married rate
How many withholding allowances you claim
Each allowance reduces the amount withheld
Whether you want an additional amount withheld

7. Filling Out the W4 Can someone claim you as a dependent?
A parent can claim you if…
You are under age 19, or under 24 and a full time student
You live with them for more than half the year
They provide more than half of your financial support

8. Figuring out FIT withheld
Tom Neiman’s gross pay for this week is $ He is married and claims 2 allowances – himself and his wife. What amount will be withheld from his paycheck for FIT?
Use the FIT table to find the appropriate income range.
Find the column for 2 allowances
$21

9. Federal Income Tax
Rob Miller, single, works at Verizon. He earns $750 weekly. He claims 1 allowance. What is the FIT withheld?

10. Federal Income Tax
Andrew Pope, single, claims 1 allowance. He has $46 withheld for FIT. Between what two dollar amounts does Mr. Pope earn a week?

11. Federal Income Tax Questions?!?!?!?!?!?!?!?!?
Complete the Practice Worksheet

12. Section 2.2 – State Income Tax
State Income Tax is a tax assessed to a citizen by a state taxing authority agency.
Amount varies based on where you live
Typically lower than FIT

13. Section 2.2 – State Income Tax
Taxable wages is the sum of all earnings by an employee that are eligible for a particular type of tax
Taxable wages depend on your federal standard deduction and your personal exemptions
Personal Exemptions: The dollar amount that each individual taxpayer is able to deduct for him or herself or a dependent each year

14. Did You Know? All states have different state income tax rules
7 states that do not collect income tax
AK, FL, NV, SD, TX, WA, WY
8 states have a flat income tax
CO, IL, IN, MA, MI, NC, PA, UT

15. PA State Income Tax
Pennsylvania has a state income tax rate of 3.07% with no personal exemptions

16. Flat Tax Rate - PA
Married, earn $35,000 a year and live in PA. How much state income tax will be paid for the year?
Taxable Wages = $35,000
Tax Paid = $35,000 ×0.0307
=1,074.50

17. Flat Tax Rate - NC
Single, earn $64,000 a year and live in NC. NC has a $7,500 single exemption and has a flat rate of 5.75%. How much state income tax will be paid for the year?
Tax. Wages =$64,000 −$7,500=56,500
Tax Paid =$56,500 ×0.0575=$3,248.75

18. Flat Tax Rate – Ill
Single, earn $50,000 a year and live in Illinois (which has a $2,125 personal exemption for single and a flat rate of 3.75%). How much state income tax will be paid for the year?
Tax. Wages =$50,000 −$2,125=$47,875
Tax Paid =$47,875 × =$1,795.31

19. 2.3 – Graduated State Income Tax
Graduated Income Tax is an income tax in which the tax rate increases at different levels of income.
Your tax rate INCREASES as your income INCREASES

20. Graduated State Tax - Example
Annual salary is $32,000, single. How much state income tax is paid for the year?
Personal Exemptions
Single
$1,500
Married
$3,000
Each Dependent
$750
State Tax
Annual Gross Pay
Tax Rate
First $3,500
3.0%
Next $3,500
4.5%
Over $7,000
7.0%

21. Graduated State Tax - Example 2
Annual salary is $54,200, married. How much state income tax is paid for the year?
Personal Exemptions
Single
$1,500
Married
$3,000
Each Dependent
$750
State Tax
Annual Gross Pay
Tax Rate
First $3,500
3.0%
Next $3,500
4.5%
Over $7,000
7.0%

22. Graduated State Tax - Example 2
Annual salary is $78,000, married, 2 dependents. How much state income tax is paid for the year?
Personal Exemptions
Single
$1,500
Married
$3,000
Each Dependent
$750
State Tax
Annual Gross Pay
Tax Rate
First $3,500
3.0%
Next $3,500
4.5%
Over $7,000
7.0%

23. 2.4-Social Security and Medicare Taxes
Social Security is a federal government program to pay for retirement and disability benefits(ages 62 and over)
Medicare is a federal government program to provide medical insurance (ages 65 and over)
Both are financed by taxes

24. Social Security and Medicare Taxes
Social security deducts 6.2% on your first $118,500 of annual income
Medicare deducts 1.45% on ALL of your earnings
Earnings To Date just means how much money you have made from January 1st to the current date
Tax Withheld = (Gross Pay) x (Tax Rate)

25. Example 1
Greg Leonard’s gross bi-weekly pay is $ His earnings to date for the year total $15,228. What amount is deducted from his paycheck for Social Security taxes? Medicare taxes? What is the total deduction?
SST: $ x 6.2% = $40.18
MT: $ x 1.45% = $9.40
Total deductions: $ $9.40 = $49.58

26. Income > $118,500
When a persons year to date earnings exceed $118,500, they no longer have to pay social security tax for the remainder of the calendar year.
Refer to example worksheet on how to solve problems involving this situation (provided)

27. Example
You have an annual salary of $132,000 (this is equal to a monthly salary of $11,000). A portion of Novembers income would not be subject to SST since the year-to-date earnings for November would exceed $118,500.
$121,000 - $118,500 = $2,500. So $2,500 of Novembers income is NOT subject to SST.
Thus, $11,000 - $2,500 = $8,500 is subject to SST.

28. Example 2
Jim Sorgi is the president of a bank. He earns a yearly salary of $177,000, and is paid monthly. How much is withheld in September for Social Security and Medicare? What is the total?
$14,750 per pay period
The year-to-date earnings for September would be $14,750(9) = $132,750
So $132,750 - $118,500 = $14,250 is NOT taxable
So, $14,750 - $14,250 = $500 is taxable
$500(.062) = $31 for Social Security for September

29. What is the cost of… $200 $125 $5,000 $220 Trip to the emergency room
X-rays
Surgery
Medication and Supplies
$200
$125
$5,000
$220

30. 2.5 – Group Health Insurance
Group Insurance is insurance offered by many businesses to employees, paid in part by the business and in part by deductions from employees’ paychecks
Group insurance can cost less than individual insurance

31. Group Health Insurance
Employee’s Share = Annual Amount x Employee’s Percent
The employee’s amount is usually deducted each pay period
Deduction per pay period = Total Annual Amount Paid by Employee
# of Pay Periods Per Year

32. Example 1
Jonny Tsunami has family medical coverage through the group medical plan that his work company provides for its employees. The annual cost of Tsunami’s family membership is $4,500. The company pays 80% of the cost. How much does he pay annually for medical insurance?
Step 1: Find the percent paid by the employee
100% - (Percent company pays)
100% - 80% = 20%
Step 2: Find the total amount paid by employee
Annual Amount x Employee’s Percent
$4, x 20% = $ total paid by employee

33. Example 2
Tim Clark, carpenter. He has family medical coverage. The annual cost of the insurance is $5,000. The company pays 75% of the cost. How much is deducted from his bi-weekly paycheck for medical insurance?
Percent paid by employee: 100% - 75% = 25%
Amount paid by employee: $5,000(0.25) = $1,250
Deduction per pay period: $1,250 ÷ 26 = $48.08

34. Statement of Earnings (2.6)
Additional deductions can be taken from your pay
Union dues, community funds, savings plans, etc.
Your Earnings Statement (attached to paycheck) lists all your deductions, gross pay, and net pay for the pay period
Net Pay is the amount you have left after all tax withholdings and personal deductions have been subtracted

35. Statement of Earnings
Net Pay = Gross Pay – Total Deductions

37. Additional PA Taxes State Unemployment Insurance (SUI) Local Taxes
0.07% of your pay
Local Taxes
Earned Income Tax (the higher of where you work and live) – Midland is 1% of your pay
Local Service Tax (tax paid for where you work) Flat tax. Usually about $1 a week.

38. Where Did the Money Go? Federal Income Tax (about 15%)
State Income Tax (3.07%)
Social Security Tax (6.2%)
Medicare Tax (1.45%)
Local Earned Income Tax (1%)
Local Service Tax (about 0.11%)
State Unemployment Insurance (0.07%)
Group Insurance Rates
Retirement

39. Example 1 Find total deductions, then find net pay 15 Katie Kramer
Dept
Employee
Check Number
Gross Pay
Net Pay 15
Katie Kramer
1501
$600.00
Tax Deductions
Other Deductions
FIT
SST
Medicare
State
Local
Medical
Union Dues
Others -
12.40
2.50
Weekly salary. Married, claims 3 allowances. State tax is 1.5% of gross pay, no deductions or exemptions. She pays $12.40 for medical insurance, $2.50 for charity. Find Net Pay.

40. Example 2 2 Jonny Patton 14 $450.00 Tax Deductions Other Deductions
Dept
Employee
Check Number
Gross Pay
Net Pay 2
Jonny Patton 14
$450.00
Tax Deductions
Other Deductions
FIT
SST
Medicare
State
Local
Medical
Union Dues
Others -
10.40
2.50
Single, 2 allowances. State tax is 2.5%, no deductions or exemptions. He pays $10.40 for medical insurance and $2.50 for charity. Is this statement correct?

41. Example 3
Serena Masters is single and claims 1 allowance. Her gross weekly pay is $ Each week she pays federal, Social Security, and Medicare taxes, $14.40 for medical insurance, and $10.00 for union dues. Find her net pay.
Federal: $40
Social Security: $440(0.062) = $27.28
Medicare: $440(0.0145) = $6.38
Net Pay = $440 – ($ $ $ $ $10.00) =

42. Concept Check
Pg. 129, #1-7