1. Consumer Math Class East Jackson High School 2015
Tax Unit: Module 1
Consumer Math Class
East Jackson High School
2015

2. Module 1: Payroll Taxes and Federal Income Tax Withholding
Introduction
Payroll taxes include the Social Security tax and the Medicare tax.
The Medicare tax is used to provide medical benefits for certain individuals when they reach age 65.
Federal income taxes are used to provide for national programs.

3. Do you need to file?

4. Social Security Tax
The Social Security tax is also called the FICA (Federal Insurance Contributions Act) tax.
Social Security taxes provide the following:
Retirement benefits
Benefits for the dependents of retired workers
Benefits for the disabled and their dependents

5. Medicare Tax
Provides medical benefits for certain individuals when they reach 65.
Individuals eligible:
workers
retired workers
spouses of workers and retired workers

6. Federal income taxes finance:
National defense, veterans, and foreign affairs
Social programs
Physical, human, and community development
Law enforcement
Interest on the national debt

7. Gross Pay and Net Pay Gross pay = the total amount an employee earns
Net pay (Take-home pay) = amount the employee receives after money has been withheld for:
Social Security taxes
Medicare taxes
Income tax (Federal, State, and/or City)
Other withholdings
Employers send the withheld taxes to the taxing authorities.

8. Payroll Taxes 2014 Payroll Tax Rates Social Security tax rate 6.20%
Medicare tax rate %
Total payroll taxes %
There is a maximum annual amount of Social Security tax withheld per employee. Social Security taxes are not withheld on amounts over the earnings limit. For 2014, the earnings limit was $117,000, and the maximum Social Security tax was $7,254 ($117,000 x 6.2%). There is no limit on the amount of wages subject to Medicare tax.

9. Form W-4
Employees complete Form W-4, Employee’s Withholding Allowance Certificate.
Employers use Form W-4 to determine how much federal income tax to withhold.

10. Withholdings depend on:
The employee’s marital status
The number of withholding allowances claimed by the employee.
The more allowances, the less $ withheld.
Any additional amount the employee wants to withhold
Any exemptions from withholding that the employee claims.

11. Example W-4

12. Example
Angela Viviano earns $2,000 a month as a physical therapist’s assistant. Angela’s net pay is calculated as follows:
Gross Pay $2,000
Social Security (6.2%) -$124
Medicare (1.45%) -$29
Income Tax (per W-4) -$237
Retirement -$50
Net Pay $1,576
Her employer sends $390 ($124 + $29 + $237) to the federal government and $50 to the retirement fund.

13. Quick Check! ____1. Which tax provides for medical benefits?
a. FICA tax
b. Federal income tax
c. Social Security tax
d. Medicare tax
____2. How much income tax do employers withhold from employee pay?
a. 6.2% of gross pay
b % of gross pay
c % of gross pay
d. Employers use the information on Form W-4
to compute income tax withholding.
____3. Net pay
a. is more than gross pay.
b. is also known as take-home pay.
c. is gross pay minus 7.65%
d. depends on how much the employee wants to pay in Social Security
taxes.

14. Ahmed Khan b 3 50 Who completed Form W-4? _______________
____2. Is the taxpayer married or single?
a. Married
b. Single
c. Divorced
d. Widowed
How many allowances does the taxpayer claim? _____
How much additional tax does the taxpayer want to be withheld? _________ b 3 50

15. Review Questions
____1. Employees decide when to pay their payroll taxes.
a. True
b. False
____2. Federal income taxes are used to pay the interest on the national debt.
____3. In 2014, the Medicare tax rate was 1.45% of gross pay.
____4. Employees use Form W-4 to prove that they are eligible to work in the United States.

16. Simulation for Module 1 Learn how to complete a Form W-4
Your name is Lawrence Red Owl.
You have just recently graduated from college with a marketing degree.
On the 1st of next month you will start your new job as manager of a clothing store in a mall.
You will get a weekly salary plus a bonus based on the store’s sales.

17. Use the following information to fill out the Form W-4 given in your packet.
Marital Status: Single
Children: None
U.S. citizen: Yes
Dependents other than above: None
Social Security Number:
Address:
5022 Oak Tree Dr.
Anytown, US 00001

19. You’ve just finished Module 1!
Congratulations!
You’ve just finished Module 1!
All information came from the Internal Revenue Service Understanding Taxes Program