1. LESSON 12-2 Determining Payroll Tax Withholding
4/20/2017
LESSON 12-2
Determining Payroll Tax Withholding

2. DEDUCTIONS FROM WAGES Gross Pay – your pay before taxes
Net Pay = your pay after deductions (taxes)
Amount employee actually receives
Gross Wage – deductions = Net Pay
Payroll taxes: taxes based on the payroll of a business
Owe the government the taxes on your behalf
Is this an Asset, liability, or Owner’s Equity
Liability = owe money

3. EMPLOYEE PAYROLL TAX Taxes that are withheld from gross wage
Employee Income Taxes
Federal Income Tax
State, City and County taxes
Social Security Taxes
Medicare Taxes
Businesses:
Forward amount owed periodically to Federal Government
Calculated as a percentage of the pay check (gross)

4. EMPLOYEE INCOME TAX Federal Income Tax Withheld in all 50 states
Amount withheld is based on
allowances claimed on W4
Filing status (married or single)
How often you get paid (monthly, weekly, etc….)
Amount of employee’s Gross Wage
State, City and County taxes based on the same items

5. EMPLOYEE’S WITHHOLDING ALLOWANCE CERTIFICATE (W4)
Claim “0”
Withholding Allowance: deduction from total earnings for each person legally supported by a taxpayer, including the employee
Itemized in #5 of the W4
Determines amount deducted from each check
More you claim, the less paid in taxes (not less you owe)

6. DETERMINE TAXES What company withholds:
If Married, paid Semi-monthly (2 times a month) , claimed 2 allowances with total earnings of $
Open text to page 347 & 348
Select Withholding form for marital status
Find the Range in the left column that gross earnings falls between.
Follow across to the number of allowances claimed on W4

7. EMPLOYEE’S INCOME TAX WITHHOLDING – MARRIED PERSONS
If Married, with 2 allowances with total earnings of $
1. Select the appropriate table – Married or Single
Find row where Earnings falls between
Move Across to row with allowances
- Grids Updated Yearly

8. PRACTICE
Examples:
If Single, paid Semi-monthly (2 times a month) , claimed 2 allowances with total earnings of $
Fed Tax: Soc. Sec. Tax Medicare Tax
If Married, paid Semi-monthly (2 times a month) , claimed 0 allowances with total earnings of $
If Married, paid Semi-monthly (2 times a month) , claimed 3 allowances with total earnings of $985.00
If Single, paid Semi-monthly (2 times a month) , claimed 0 allowances with total earnings of $
If Single, paid Semi-monthly (2 times a month) , claimed 2 allowances with total earnings of $

9. EMPLOYEE PAYROLL TAXES
Social Security Taxes
Federal tax for old age, survivors, and disability
Paid by both employees and employers at 12.4% of gross earnings
Employees pay 6.2% - withheld from paycheck
Employers pay 6.2% - match employee contributions
Tax Base: maximum amount of earnings on which a tax is calculated
Maximum amount of earnings for calendar year = 87,000 (in textbook)
Current Rates:
Medicare Taxes
Federal tax for hospital insurance > 65
Paid by both employees and employers at 2.9% of gross earnings
Employees pay 1.45% of gross earnings (no tax base)
Employers pay 1.45% - must match employee contributions

10. LESSON 12-2
4/20/2017
CALCULATE THE TAX RATE
Calculate Social Security for gross wage of $1137
How much does employee pay?
rounded to $70.49
How much does the employer pay?
70.49
Total Social Security tax that employer pays government?
140.98
Calculate Medicare for gross wage of $1137
= round up to $16.49
$16.49
Total Medicare tax that employer pays to government?
$32.92
Problem 1: Employee pays for Social Security
Employer pays 97.34
Ttoal Social Security =
Medicare: rounds to $22.77
Employer pays $22.76
Total Medicare:

11. CALCULATE THE TAX RATE
Calculate taxes on section in notes.

12. TERMS REVIEW payroll taxes withholding allowance social security tax
Medicare tax
tax base

13. Review
WTG 12-2