Presentation on theme: "Chapter 2 Net Income. Federal Income Tax federal income tax is the money withheld by an employer from an employer paycheck to pay federal government."— Presentation transcript:
Chapter 2 Net Income
Federal Income Tax federal income tax is the money withheld by an employer from an employer paycheck to pay federal government taxes withholding allowances – the number of people an employee supports, which helps employers know how much money to withhold for federal income tax.
Example 1 Carla Good is an actuary. Her gross pay for this week is $ She is married and claims 2 allowances for herself and her husband. What amount will Carla’s employer withhold from her pay for FIT? -step 1: find the income range from the table -step 2: find the column for 2 allowances -step 3: the amount of federal income tax to be withheld is $14.00
Find the federal income tax withheld each week using the weekly payroll tables. Dan Caine, a welder, is married, claims 1 allowance, and earns $ $18.00 Angie Kim, executive assistant, is single, claims 2 allowances, and earns $ $31.00
Percentage Method Some companies use percentage method instead of tax tables to compute the income tax withheld. With this method, you use taxable wages to find the withholding amount. Taxable wages depend on the number of allowances you claim.
Percentage method of withholding – single person Each weekly allowance is Weekly taxable wageThe amount of income tax to withhold is: OverBut not over $51.00$195.00$0.00 plus (10% of the excess over $51.00) $195$645.00$14.40 plus (15% of the excess over $195) $645$1482$81.90 plus (25% of the excess over $645)
Example 2 Lance Hart’s gross pay for this week is $ He is a carpenter’s apprentice, is single, and claims 2 allowances. Using the percentage method, what amount will Lance’s employer withhold from his pay for federal income tax? Step 1- find the allowance amount Allowance amount = the # of allowances x $ = 2 x Step 2 – find the taxable wage taxable wage = gross pay – allowance amount $ = $ $126.92
Step 3 – find the amount withheld for FIT using the table A. find the taxable wage in the row over $195 but not over $645 B. find the amount of income tax withheld by: Tax withheld for FIT = $14.40 plus 15% of the excess over $195 = $ [0.15 x ($ $195)] = $ (0.15 x $71.31) = $ $10.70 = $25.10
Lesson 2.2 State Income Tax
State Income Tax Most states require employers to withhold a certain amount of pay for income tax. In some states, the tax withheld is a percentage of taxable wages Exemptions – withholding allowances which allow for supporting yourself, your spouse, and others in your family who are your dependents. taxable wages = annual gross pay – exemptions state income tax = taxable wages x tax rate
Example 1 Tony Raymond’s gross pay as a landscape designer is $44,750 a year. The state income tax rate is 3% of taxable wages. He takes an exemption for himself and 1 exemption for his child. How much does Tony’s employer withhold yearly from his gross earnings for state income tax? Exemptions Single$2,000 Married$4,000 Each dependent $2,000
Example 2 Andrea McReedy is a dispatcher for a local trucking company. She earns $52,600 per year. She is married and pays $2,430 in state income tax per year. She claims no other dependents. What is the state income tax rate for her state?
Lesson 2.3 Graduated State Income Tax
Graduated income tax
Example Louise Main’s annual salary as a police officer is $34,500. She receives her pay semimonthly, or twice a month. Her exemptions total $2000. Use the table to determine how much her employer deducts for state income tax from each of her semimonthly paychecks. State Tax Taxable wages Tax rate First $ % Next $ % Next $ % Over $ % exemptions Single$2000 Married$4000 Each dependent $2000
Step 1 – find the taxable wages annual gross pay – exemptions $34,500 - $2000 = $32,500 Step 2 – find the annual state tax withheld a. first $1000: 1.5% of $1000 = $15.00 b. next $2000: 3.0% of $2000 = $60.00 c. next $2000: 4.5% of $2000 = $90.00 d. over $5000: 5.0% of (32,500 – 5000) = 5% of 27,500 = $ Total: $
Try on your own Eddie Black is single and receives his pay biweekly. His annual salary as a tailor for Whyte and Broom is $21, 350. What is the amount of tax withheld each pay period? answer: $33.94 Lydia Robins’ annual salary from Dresler & Everhard is $67,500. She is married, has one dependent, and is paid monthly. What is the amount of tax withheld each pay period? answer: $249.17