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GOALS BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 1 2.1Deductions from Gross Pay Find federal withholding tax deductions Calculate social security.

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Presentation on theme: "GOALS BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 1 2.1Deductions from Gross Pay Find federal withholding tax deductions Calculate social security."— Presentation transcript:

1 GOALS BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 1 2.1Deductions from Gross Pay Find federal withholding tax deductions Calculate social security and Medicare tax deductions Calculate total deductions and net pay

2 BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 2 Federal Withholding Tax Deduction Deductions Withholding taxes Withholding allowance

3 BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 3 Deductions Deductions are subtractions from gross pay.

4 BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 4 Withholding Taxes Governments require employers to deduct money from employee wages for income taxes, or withholding taxes, plus social security and Medicare taxes. The amount of withholding tax depends on a worker’s wages, marital status, and number of withholding allowances claimed.

5 BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 5 Withholding Allowance A withholding allowance is used to reduce the amount of tax withheld. Workers may claim one withholding allowance for themselves, one for a spouse, and one for each child or dependent.

6 BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 6 Withholding Table To find the amount withheld from a worker’s wages, you can use an income tax withholding table prepared by the government.

7 BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 7 Sample Withholding Tables

8 BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 8 BUSINESS TIP Congress changes the federal income tax rates from time to time. You can find the latest federal withholding tax rates at www.irs.gov.

9 BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 9 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.

10 BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 10 FICA Benefits 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

11 BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 11 FICA Tax Rates FICA tax rates and the maximum wages on which the taxes are charged are set by Congress and may change from time to time. The overall tax rate of 7.65% is used in this text. Social security tax rate of 6.2% applied to a maximum wage of $87,900 Medicare tax rate of 1.45% applied to all wages.

12 BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 12 BUSINESS TIP People who work for themselves must also pay FICA taxes on yearly net earnings. The tax rates for the self employed are twice the rates paid by employees because the self-employed person must pay the employee and employer shares.

13 BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 13 Total Deductions and Net Pay In addition to 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 deductions are subtracted from total wages, or gross pay, an amount remains that is called net pay, or take-home pay. Gross Pay – Deductions = Net Pay

14 BUSINESS MATH© Thomson/South-WesternLesson 2.1Slide 14 Statement of Employee Earnings and Payroll Deductions

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