ࡱ> rtqy .'bjbj lV{{x$$~~4SFFFFFh)h)h)(S*S*S*S*S*S*S$UIXjNSh)*'>h)h)h)NS~~FFcS+++h).~FF(S+h)(S++LO0l^RFPUTO)|P$SyS0SP@XH*XHRXR4h)h)+h)h)h)h)h)NSNS+h)h)h)Sh)h)h)h)Xh)h)h)h)h)h)h)h)h)$ D: Chapter 2 Net Pay This is your paycheck  Net this is any amount left over after taking out deductions. 2-1 Deductions from Gross Pay Deductions subtractions from gross pay Federal Withholding Tax Deductions also known as income tax Based on: Marital status Number of exemptions Income level Look on page 42compare amt of taxes if you are married and make $454 per week and have 1 deductions versus 6 deductions.. Social Security and Medicare Tax Deductions The tax for Social Security is part of the Federal Insurance Contributions Act and is also called the FICA tax. (This is calculated on a percentage of your wages, but has a maximum limit.) It includes: Disability - benefits for workers who are disabled and unable to work Medicare - which provides hospital insurance for some disabled people and for people over 65 Retirement - benefits for people who are at least 62 Survivors benefits - which are paid to spouses and dependent children when a Social Security recipient dies.    If a person earns more than $102,000.00 a year from one job, the employer does not deduct Social Security tax after the wages exceed $102,000. If a person earns more than $102,000 a year from several jobs, each employer withholds 6.2% Social Security tax to the maximum $102,000 earning limit. The taxpayer must apply for a return of the overpayments when a federal income tax return is filed. Example: Find the total FICA tax on incomes of $35,000, $80,000 and $104,000. IncomeSocial Security 6.2%Medicare 1.45%Total FICA 7.65%$35,000$ 2,170.00$ 507.50$ 2,677.50$80,000$ 4,960.00$ 1,160.00$ 6,120.00$104,000$ 6,324.00$ 1,508.00$ 7,832.00 Total Deductions and Net Pay In addition to income tax (withholding), Social Security, and Medicare taxes, other deductions may also be subtracted from gross pay, such as union dues, health and life insurance and government bonds. After all deduction are subtracted from total wages or gross pay, an amount remains that is called net pay or take home pay. Net Pay = Gross Pay Deductions Page 46 #36 44 Answers: ( 9 points) $104.34 $473.66 $540 $539.40 $390.60 $1,513.80 $0.00 $651.00 ,827 2-2 Federal Income Taxes Adjusted Gross Income and Taxable Income Withholding Tax money deducted from a persons pay by employersthis is based on an estimate of taxes owed at years end. Federal Income Tax Return reports submitted at years endit states how much income tax you paid and how much you should have paid. Gross Income - includes money earned all year from all of the following: wages salaries commission bonuses tips interest dividends prizes pensions and all others Adjustments these are items of money that you have paid outsuch as: Business losses, Payments to approved retirement plans Alimony Certain penalties The amount left after subtracting adjustments is called the adjusted gross income. Gross IncomeALL money earned Adjustments(retirement payments, losses. alimony, penalties) = Adjusted Gross Income Deductions.which ever is moreitemized expenses OR standard deduction Exemptions.usually $3,500 per person/dependent = Taxable Income Deductions expenses that reduces the amount of your taxable incomesuch as mortgages, property taxes, state and local income taxes, medical/dental expenses, losses and contributions to charities.You may claim a fixed amount called a standard deduction, or if your deductions are more than the standard deduction, you list all your deductions on your tax return under itemized deductions. The standard deduction is: Single - $5,450 Married - $10,900 From Gross income, you may be able to subtract deductions and exemptions for which you qualify. The result is your taxable income. Taxable income - the income on which you actually pay tax. Taxable Income = Adjusted Gross Income Deductions and Exemptions. Exemptions an amount of income per person that is free from tax.you can claim yourself, spouse, children and dependent parents. Exemptions are $3,500 per person. Income Tax Due use the tables to find a person owes. Income Tax Refunds for Single Dependents many young people are listed as dependents on someone elses income tax even thought they are employed. They are required to pay income taxes on their earnings even thought the tax they actually owe is usually very low. Gross Income: - Business losses, - Payments to approved retirement plans - Alimony Certain penalties = Adjusted Gross Income  - Deductions such as: Medical expenses Interest paid on a mortgage Property taxes State and local income taxes Theft losses Contributions to charity - Exemptions of $3,500 per person = Taxable Incomethis is the amount you should be paying taxes on (the lower, the better) Homework do pages 15-17 due tomorrow 2-3 State and City Income Taxes 1. State and City Flat Income Taxes Some states and cities tax personal income as a percent of federal taxable income, however, they use a flat taxwhere no matter what income you are at, everyone pays the same percentage. Is this a good or bad idea? To solve, just multiply your income by the stated percentage. Allison Green has taxable income to be $45,300. She pays a state income tax rate of 3% on her federal taxable income. Find her state income tax. $45,300 x .03 or 3% = $1,359 Go to Page 55 in your textbook A. $511.50 B. $1,136.20 2. State and City Graduated Income Taxes Some state and cities use a graduated income tax rate like the federal government, where the more money you make the higher percent income tax you pay. Look at the table on the bottom of page 55. 2-4 Benefits and Job Expenses Fringe Benefits items given to an employee in addition to his/her pay or salary Health care Dental Insurance Pensions Holiday pay Sick days Vacations Parking Car Allowance Discounts for purchases of products Health clubs Spa/country club membership Child care Education Expenses: Parking Gas Tolls Required memberships Typically, fringe benefits are worth as much as 15% to 40% of the amount paid in wages. When you are considering a job offer, the value of the fringe benefits should be added to the amount of wages to find the total job benefits. Finding total job benefits. Gross Pay + Fringe Benefits = Total Job Benefits (Some fringe benefits can be figured very accurately, however, others must be estimated.) Calculating Job Expenses. Job expenses are those items that the employee must pay for in order to work there. What are some job expenses? travel license or license renewals professional dues commuting expenses uniforms tools parking Calculating Net Job Benefits To find net job benefits, subtract total job expenses from total job benefits. Total Job Benefits Job Expenses = Net Job Benefits ****Then you can make a better decision on which job to take 2-5 Analyze Take-Home Pay 1. Take-Home Pay as a percentage of Gross Pay To calculate.figure take-home and divide by gross..is of (you take your is number and divide it by your of number) Evaluating the impact of a Raiseremember when you get a raise, you need to account for possibly income tax and higher FICA taken out of pay. Pre-Tax Deductionssometimes a person may have money taken out pre-tax and put into an account to use at a later datethis money is subtracted from your gross pay and then proper taxes would apply to the remainder. (You will be taxed on this money at the time of using it) Look at page 65 in your textbook FICAmade up of: SS Medicare Income Tax: Based on: $ Marital Status and Dependents Take Home Pay Ability to Pay Theory Together this makes up FICA at 7.65% of wages Social Security tax is 6.2% and applies to a max of $102,000.00 Medicare tax is 1.45% and applies to all wages. 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