Presentation on theme: "Why do you have to pay taxes?"— Presentation transcript:
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 PayThe deductions taken out of your paycheck help support schools, roads, national parks, and more.
3 Deductions – Memorize these 1.0% - Local7.65%- Total Social Security and Medicare6.2% - Social Security Normally4.2% - Social Security currently (until January 1, 2013)1.45%- Medicare3.07% - PA State Tax.08%- PA Unemployment TaxWhy 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 RateSingleMarried Filing JointHead of Household10%Up to $8,600Up to $17,200Up to $12,25015%$8,601 – $34,900$17,201 – $69,800$12,251 – $46,75025%$34,901 – $84,500$69,801 – $140,850$46,751 – $120,70028%$84,501 – $195,950$140,851 – $237,700$120,701 – $216,80036%$195,951 – $383,350$237,701 – $383,350$216,801 – $383,35039.6%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-4Employee’s Withholding Allowance CertificateComplete a Form I-9Employment Eligibility Verification
8 Personal exemptions in dollar amounts 2012: $3,8002011: $3, : $3, : $3, : $3, : $3, : $3,300DependentsYourselfSpouseBlood relativesDonationsMortgage interestEtc.
9 Form W-4 Employee’s Withholding Allowance Certificate Determines the percentage of gross pay which will be withheld for taxesWithholding AllowancesThe number of people an employee supports.Used to determine the amount of federal taxes withheld from the paycheckThe 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 support2012 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 nameWrite Social Security number on Line 2On Line 3, check the appropriate box to indicate marital statusComplete the “Personal Allowances Worksheet” above the form (A-H)Enter a one or a zero on Line 5Can 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 employer8. Keep a copy for personal recordsRemember: 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 FormUsed to verify the eligibility of individuals to avoid hiring undocumented workers or others who are not eligible to work in the United StatesMust provide documentation which establishes identity and employment eligibilityExamples include driver’s license, passport,Social Security card, and birth certificate
15 Three common methods employers may use to Paying EmployeesThree common methods employers may use topay employees:Paycheck-Employee responsible for handling the paycheckImmediately see payroll stub and deductions
16 Paying Employees continued Direct Deposit-Employers directly deposit employee’s paycheck into the authorized employee’s depository institution accountEmployee receives the paycheck stub detailing the paycheck deductionsMost secure because there is no direct handling of the checkEmployee 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 payFunds are directly deposited by an employer into an account at a depository institution that is linked to the payroll cardUse the payroll card for ATM withdrawals or to make purchases
18 Paycheck StubDo you understand everything you see on your paycheck stub?
19 Paycheck Stub Paycheck Stub On-The-Go Employee Beakens, Joe SSNCheck # 164Check Amount $1,102.98Employee Address 293 Michael Grove Billings, MTPay Type- Gross PayDeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social SecurityFed MED/EE or Medicare Medical 401K$ $40.82 $83.91 $19.62 $0.00 $0.00$ $ $ $ $0.00 $0.00Totals$250.35$1,502.10Pay Period 6/11/2009-7/11/2009Paycheck StubA document included each pay period which outlines paycheck deductions
20 Personal Information Personal Information States the employee’s full name, address, and Social Security numberAlways check to ensure this information is correct
21 Pay PeriodPay PeriodThe length of time for which an employee’s wages are calculated; most are weekly, bi-weekly, twice a month, or monthlyThe 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 TaxesInternal Revenue Service (IRS) – Collects federal taxes, issues regulations, and enforces tax laws written by the United States Congress.
25 Federal Tax Brackets15%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 $8,50010% of the taxable incomeOver $8,500 but not over $34,500$850 plus 15% of the excess over $8,500Over $34,500 but not over $82,250$4,750 plus 25% of the excess over $34,500Over $82,250 but not over $174,400$17,025 plus 28% of the excess over $83,600Over $174,400 but not over $379,150$42,449 plus 33% of the excess over $174,400Over $379,150$110, plus 35% of the excess over $379,150Standard 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: $ 21,703.00This 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 taxesThe 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 A5These may not be exact so please do not use them to calculate your own federal taxesI will give you a handout also to eliminate flipping to the back of your book while doing your class workUse 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?$8How much is withheld from the weekly wage of a married person earning $379 with 2 allowances?$9How much is withheld from the weekly wage of a single person earning $238 with no allowances?$20How much is withheld from the weekly wage of a single person earning $318 with 5 allowances?$0