1. How does your employer know how much to take out of your paycheck for deductions?

2. Why do you have to pay taxes?
Take-Home Pay
The deductions taken out of your paycheck help support schools, roads, national parks, and more.

3. Deductions – Memorize these
1.0% - Local
7.65%- Total Social Security and Medicare
6.2% - Social Security Normally
4.2% - Social Security currently (until January 1, 2013)
1.45%- Medicare
3.07% - PA State Tax
.08%- PA Unemployment Tax
Why isn’t Federal listed? Base on three things (W-4 form) Employees withholding allowance certificate.
Marital Status, Earnings, Allowances you claim

4. Take heart, America. Even celebrities pay taxes on April 15.
Well, sometimes.
Nicolas Cage’s bookkeeping got a bit muddled, and now he has to shell out $13.3 million to the federal government.
Joe Francis, founder of “Girls Gone Wild,” forgot, too. His tab? $29.4 million -- or roughly 5 million margaritas.
Sinbad the Comedian? A very unfunny $8.15 million, which doesn't even include interest and legal fees.
Other celebs who owe the taxman big bucks are Pamela Anderson ($1.7 million), the rapper Nas ($3.4 million), singer Dionne Warwick ($2.2 million) and actor Terrence Howard ($1.1 million). (Click here to see some of the celebs on the IRS’ hit list)
Celebrity Tax Evaders Hit List

5. Tax Rate
Single
Married Filing Joint
Head of Household
10%
Up to $8,600
Up to $17,200
Up to $12,250
15%
$8,601 – $34,900
$17,201 – $69,800
$12,251 – $46,750
25%
$34,901 – $84,500
$69,801 – $140,850
$46,751 – $120,700
28%
$84,501 – $195,950
$140,851 – $237,700
$120,701 – $216,800
36%
$195,951 – $383,350
$237,701 – $383,350
$216,801 – $383,350
39.6%
Over $383,350

6. Formula Gross Income - Deductions = Net Income (take home pay)
Mandatory:
Federal – FIT (W-4: marital status, amount of income, exemptions)
PA state – 3.07% (.0307)
Local – 1.0% (.01)
Social Security – normally, 6.2% (.062) (first $110,100), currently 4.2% (.042) for employees.
Medicare – 1.45% (.0145)
PA Unemployment Tax - .08% (.0008)
Voluntary:
Medical, savings, investing, scholarship, etc.

7. Starting a New Job To receive a paycheck, an employee must:
Complete a Form W-4
Employee’s Withholding Allowance Certificate
Complete a Form I-9
Employment Eligibility Verification

8. Personal exemptions in dollar amounts
2012: $3,800
2011: $3, : $3, : $3, : $3, : $3, : $3,300
Dependents
Yourself
Spouse
Blood relatives
Donations
Mortgage interest
Etc.

9. Form W-4 Employee’s Withholding Allowance Certificate
Determines the percentage of gross pay which will be withheld for taxes
Withholding Allowances
The number of people an employee supports.
Used to determine the amount of federal taxes withheld from the paycheck
The more allowances you claim on Form W-4, the less income tax your employer will withhold. You will have the most tax withheld if you claim “0” allowances.
Dependent – a person who relies on the taxpayer for financial support
2012 W-4 Form

10. Steps to Completing a Form W-4
Print or type legal name on Line 1 and home address directly below the name
Write Social Security number on Line 2
On Line 3, check the appropriate box to indicate marital status
Complete the “Personal Allowances Worksheet” above the form (A-H)
Enter a one or a zero on Line 5
Can you claim exempt on Line 7? See “Exemption from Withholding” handout.

11. Steps to Completing a Form W-4 continued
7. Sign name and date the form before giving it to the employer
8. Keep a copy for personal records
Remember: The more allowances you claim on Form W-4, the less income tax your employer will withhold. You will have the most tax withheld (deducted) if you claim “0” allowances.
**Exempt,….. 6, 5, 4, 3, 2, 1, 0 ( moving left to right, more money will be deducted, from zero to maximum)
** no federal taxes in last year, less than $5700 earned and $300 unearned income

12. Form I-9 (copy attached to W-4)
Employment Eligibility Verification Form
Used to verify the eligibility of individuals to avoid hiring undocumented workers or others who are not eligible to work in the United States
Must provide documentation which establishes identity and employment eligibility
Examples include driver’s license, passport,
Social Security card, and birth certificate

13. Who’s responsible for all this?????

14. Answer: President Abe Lincoln

15. Three common methods employers may use to
Paying Employees
Three common methods employers may use to
pay employees:
Paycheck-
Employee responsible for handling the paycheck
Immediately see payroll stub and deductions

16. Paying Employees continued
Direct Deposit-
Employers directly deposit employee’s paycheck into the authorized employee’s depository institution account
Employee receives the paycheck stub detailing the paycheck deductions
Most secure because there is no direct handling of the check
Employee knows exactly when paycheck will be deposited and available

17. Paying Employees continued
3. Payroll Card-
A payroll card electronically carries the balance of the employee’s net pay
Funds are directly deposited by an employer into an account at a depository institution that is linked to the payroll card
Use the payroll card for ATM withdrawals or to make purchases

18. Paycheck Stub
Do you understand everything you see on your paycheck stub?

19. Paycheck Stub Paycheck Stub On-The-Go Employee Beakens, Joe
SSN
Check # 164
Check Amount $1,102.98
Employee Address 293 Michael Grove Billings, MT
Pay Type- Gross Pay
Deductions
Current
Year-to-date
 $1,353.33
Federal Withholding State Withholding Fed OASDI/EE or Social Security
Fed MED/EE or Medicare Medical 401K
$ $40.82 $83.91 $19.62 $0.00 $0.00
$ $ $ $ $0.00 $0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2009-7/11/2009
Paycheck Stub
A document included each pay period which outlines paycheck deductions

20. Personal Information Personal Information
States the employee’s full name, address, and Social Security number
Always check to ensure this information is correct

21. Pay Period
Pay Period
The length of time for which an employee’s wages are calculated; most are weekly, bi-weekly, twice a month, or monthly
The last day of the pay period is not always your payday to allow a business to accurately compute wages

22. Deductions Deductions
The amount of money subtracted from the gross pay earned for mandatory systematic taxes, employee sponsored medical benefits, and/or retirement benefits

23. Lesson Objective Determine the amount withheld for federal income tax.
Who collects the taxes?

24. Taxes
Internal Revenue Service (IRS) – Collects federal taxes, issues regulations, and enforces tax laws written by the United States Congress.

25. Federal Tax Brackets          
15%
10%
28%
27.5%
27%
25%
31%
30.5%
30%
36%
35.5%
35%
33%
39.6%
39.1%
38.6%
Your tax bracket depends on your income and your filing status saw a tax hike on the wealthy (via two new brackets), and then 2001 through 2003 saw a series of tax cuts that lowered some of the tax brackets.

26. If Taxable Income Is:
The Tax Is:
over $8,500
10% of the taxable income
Over $8,500 but not over $34,500
$850 plus 15% of the excess over $8,500
Over $34,500 but not over $82,250
$4,750 plus 25% of the excess over $34,500
Over $82,250 but not over $174,400
$17,025 plus 28% of the excess over $83,600
Over $174,400 but not over $379,150
$42,449 plus 33% of the excess over $174,400
Over $379,150
$110, plus 35% of the excess over $379,150
Standard deduction
$5,800

27. To take an example, suppose your taxable income (after deductions and exemptions) was exactly $100,000 in 2011 and your status was Single, then your tax would be calculated like this:
($ 8,500   minus  
0 )
  x .10 :
$   (you are taxed 10% on the first $8,350 of your earnings)
(34,500   minus  
8,500 )
  x .15 :
$3,900.00(you are taxed 15% on earnings between $34,500 and $8,500)
(82,250   minus  
34,500 )
  x .25 :
$11,938.00
(100,000   minus  
82,250 )
  x .28 :
$4,970.00
    Total:
  $ 21,703.00
This puts you in the 28% tax bracket since that's the highest rate applied to any of your income.
Even though you are in the 28% tax bracket, you did not have all your income taxed at 28%, as you can see by this example.

28. Federal Income (Withholding) Tax
The amount required by law for employers to withhold from earned wages to pay taxes
The amount of money deducted depends on the amount earned and information provided on the Form W-4

29. Question: How does my employer figure out how much to take out of each of my paychecks for Federal taxes? Answer: There are two main methods: 1. Tax charts 2. Percentage method

30. Using Tax Charts to Calculate Federal Withholding
You have a copy of tax charts in the back of your book on pages A4 and A5
These may not be exact so please do not use them to calculate your own federal taxes
I will give you a handout also to eliminate flipping to the back of your book while doing your class work
Use the tax charts given to you to find the answers to the following examples. Be sure to note that there are different charts for single and married persons

31. Example 1: Carla’s gross pay for this week is $425. 88
Example 1: Carla’s gross pay for this week is $ She is married and claims 2 allowances—herself and her husband. What amount will be withheld from her pay for Federal Income Taxes?
Find the income range from the table for Married Persons weekly payroll period. (Appendix A4-A5 or handout)
Income range:
Find the column for 2 allowances.
The amount of income to be withheld is $14.

32. Find the column for 1 allowance.
Example 2:
Lance’s gross pay for this week is $ He is single and claims one allowance. What amount will be withheld from Lance’s pay for FIT?
Find the income range from the table for Single Persons weekly payroll period.
Income range:
Find the column for 1 allowance.
The amount of income to be withheld is $45

33. Complete the examples on your notes.
How much is withheld from the weekly wage of a married person earning $297 with 1 withholding allowance? $8
How much is withheld from the weekly wage of a married person earning $379 with 2 allowances? $9
How much is withheld from the weekly wage of a single person earning $238 with no allowances?
$20
How much is withheld from the weekly wage of a single person earning $318 with 5 allowances? $0

34. Assignment:
Section 2.1, p. 131
Problems 5 -12

35. Closure: What do you think about the “ fair tax” ?