Chapter 2 Net Income (page 114) Business Mathematics Chapter 2 Net Income (page 114) How do you calculate net income?

Section 2-1 Federal Income Tax (pages 116 to 118) How do you find the amount withheld for federal income tax?

Federal taxes are necessary to keep the government agencies and services operational.

federal income tax (or FIT). Employers are required by law to withhold a certain amount of your pay for federal income tax (or FIT).

The Internal Revenue Service (IRS) provides employers with tables that show how much money to withhold. The amount withheld depends on the individual’s income, marital status, and withholding allowances.

Federal prosecutors convict those who fail to file a tax return. The average sentence is more than 3 years!

You may claim 1 allowance (exemption) for yourself and 1 allowance for your spouse if you are married.

You may claim additional allowances for any others you support.

Example 1 Mario is single and claims 1 exemption for himself. If his gross pay for the week is $512.50, what amount will Be with held from his paycheck for federal income tax? Find his income range on the Single Persons Weekly Payroll (tax table) on page 788 of the textbook. Yes, you need the textbook! 1. He earns between $510 and $520. 2. Find the column for 1 allowance. 3. The amount of federal income tax is $55.

Example 2 Carla is married and claims 2 allowances for herself and her husband. If her gross pay for the week is $425.88, what amount will be with held from her paycheck for federal income tax? Find her income range on the Married Persons Weekly Payroll on page 790 of the textbook. 1. He earns between $420 and $430. 2. Find the column for 2 allowances. 3. The amount of federal income tax is $19.

How do you find the amount withheld for federal income tax? Complete the worksheet on Section 2-1 How do you find the amount withheld for federal income tax? Complete the worksheet on Section 2-1

Section 2-2 State Income Tax (pages 119 to 121) How do you calculate the state taxes?

In some states, the tax withheld is a percent of your taxable wages. Most states require employers to withhold a certain amount of your pay for state income tax. In some states, the tax withheld is a percent of your taxable wages.

Your taxable wages depend on personal exemptions, or withholding allowances, which allow for supporting yourself and others in your family.

PA Personal Income Tax

How do I calculate taxable wages? Annual Gross Pay - Personal Exemptions Taxable Wages

How do I calculate annual tax withheld? Taxable Wages x Tax Rate . Annual Tax Withheld

Taxable Wages = Annual Gross Pay – Personal Exemptions Example 1 Marty’s gross pay for the year is $28,500. The state income tax rate is 3.5%. If Marty takes a single exemption for himself, how much is withheld from his yearly earnings for state income tax? Personal Exemptions Single … $1,500.00 Married … $3,000.00 Each Dependent … $700 1. Find his taxable wages. Taxable Wages = Annual Gross Pay – Personal Exemptions Taxable Wages = $28,500 – 1,500 = $27,000

Tax Withheld = Taxable Wages x Tax Rate Example 1 Marty’s gross pay for the year is $28,500. The state income tax rate is 3.5%. If Marty takes a single exemption for himself, how much is withheld from his yearly earnings for state income tax? 2. Find the tax withheld. Tax Withheld = Taxable Wages x Tax Rate Tax Withheld = $27,000 x 3.5% Tax Withheld = $27,000 x 0.035 = $945.00

Taxable Wages = Annual Gross Pay – Personal Exemptions Example 2 Tami’s gross pay for the year is $65,800. The state income tax rate is 3%. Tami takes a married exemption for herself and her husband, how much is withheld from her yearly earnings for state income tax? Personal Exemptions Single … $1,500.00 Married … $3,000.00 Each Dependent … $700 1. Find her taxable wages. Taxable Wages = Annual Gross Pay – Personal Exemptions Taxable Wages = $65,800 – 3,000 = $62,800

Tax Withheld = Taxable Wages x Tax Rate Example 2 Tami’s gross pay for the year is $65,800. The state income tax rate is 3%. Tami takes a married exemption for herself and her husband, how much is withheld from her yearly earnings for state income tax? 2. Find the tax withheld. Tax Withheld = Taxable Wages x Tax Rate Tax Withheld = $62,800 x 3% Tax Withheld = $62,800 x 0.03 = $1,884.00

Complete the worksheet on Section 2-2 How do you calculate the state taxes?

Section 2-3 Graduated State Income Tax (pages 122 & 123) How do you calculate state taxes on a graduated income basis?

The tax rate on high incomes may be as much as 20 percent! Some states have a graduated income tax. Graduated income tax involves a different tax rate for each of several levels of income. The tax rate increases as income increases. The tax rate on low incomes is usually 1 percent to 3 percent. The tax rate on high incomes may be as much as 20 percent!

Taxable Wages = Annual Gross Pay – Personal Exemptions Example Carla’s annual salary is $28,500. She is paid biweekly. Her personal exemptions total $1,500. The state income tax is calculated on the following graduated basis: 2.5% on the first $25,000 3.5% over $25,000. Find the amount of the state income tax deducted from each paycheck. 1. Find her taxable wages. Taxable Wages = Annual Gross Pay – Personal Exemptions Taxable Wages = $28,500 – 1,500 = $27,000

2. Find the annual tax withheld. Example Carla’s annual salary is $28,500. She is paid biweekly. Her personal exemptions total $1,500. The state income tax is calculated on the following graduated basis: 2.5% on the first $25,000 3.5% over $25,000. Find the amount of the state income tax deducted from each paycheck. 2. Find the annual tax withheld. Tax on First $25,000 = $25,000 x 2.5% Tax on First $25,000 = $25,000 x 0.025 = $625 Tax over $25,000 = ($27,000 - $25,000) x 3.5% Tax over $25,000 = $2,000 x 0.035 = $70

2. Find the annual tax withheld. annual tax withheld = $70 + $625 Example Carla’s annual salary is $28,500. She is paid biweekly. Her personal exemptions total $1,500. The state income tax is calculated on the following graduated basis: 2.5% on the first $25,000 3.5% over $25,000. Find the amount of the state income tax deducted from each paycheck. 2. Find the annual tax withheld. annual tax withheld = $70 + $625 annual tax withheld = $695

Example Carla’s annual salary is $28,500. She is paid biweekly. Her personal exemptions total $1,500. The state income tax is calculated on the following graduated basis: 2.5% on the first $25,000 3.5% over $25,000. Find the amount of the state income tax deducted from each paycheck. 3. Find the tax per period. Tax Withheld per Pay = annual tax ÷ # of pay periods Tax Withheld per Pay = $695 ÷ 26 = $26.73

How do you calculate state taxes on a graduated income basis? Complete the worksheet on Section 2-3 How do you calculate state taxes on a graduated income basis? Complete the worksheet on Sections 2-2 & 2-3

Section 2-4 Social Security and Medicare Taxes (pages 99 & 100) How do you calculate the amount withheld for Social Security and Medicare Taxes?

Social Security (6.2%) is deducted on the first $84,900 of income, The Federal Insurance Contributions Act (FICA) requires employers to deduct 7.65% of your income for Social Security and Medicare taxes. Social Security (6.2%) is deducted on the first $84,900 of income, but Medicare (1.45%) is paid on all your earnings.

The employer must contribute an amount that equals your contribution. The federal government uses Social Security to pay for retirement and disability benefits and Medicare to provide health insurance for those 65 and older.

How do I calculate annual tax withheld? Gross Pay x Tax Rate . Tax Withheld

Example Adrian’s weekly pay is $1,750. What amount is deducted from his pay this week for Social Security taxes and for Medicare taxes? 1. Find the amount deducted for Social Security. S.S. Tax Withheld = Gross Pay x Tax Rate S.S. Tax Withheld = $1,750 x 6.2% S.S. Tax Withheld = $1,750 x 0.062 = $108.50

Example Adrian’s weekly pay is $1,750. What amount is deducted from his pay this week for Social Security taxes and for Medicare taxes? 2. Find the amount deducted for Medicare. Medicare Tax Withheld = Gross Pay x Tax Rate Medicare Tax Withheld = $1,750 x 1.45% Medicare Tax Withheld = $1,750 x 0.0145 = $25.38

Complete another worksheet on Section 2-4 Complete the worksheet on Section 2-4 How do you calculate the amount withheld for Social Security and Medicare Taxes? Complete another worksheet on Section 2-4

Section 2-5 Group Health Insurance (pages 126 & 127) How do you calculate the deduction for group insurance?

You employer will often offer you the option to join the company’s group insurance plan. You can purchase group insurance for a lower cost than individual insurance. Businesses often pay part of the cost of the insurance and the employee pays the remaining amount. Sometimes, you might be entirely responsible for the insurance premiums.

Employee’s Share

The employee’s amount is usually deducted each pay period.

Example Mario participates in his company’s group medical insurance plan. The annual cost of Mario’s plan is $2,500 per year. If the company pays 65 percent of the annual cost, how much is deducted from his biweekly paycheck to cover his portion? 1. Find the percent paid by Mario. % paid by employee = 100% - % paid by employer % paid by Mario = 100% - 65% = 35%

2. Find the annual amount paid by Mario. Example Mario participates in his company’s group medical insurance plan. The annual cost of Mario’s plan is $2,500 per year. If the company pays 65 percent of the annual cost, how much is deducted from his biweekly paycheck to cover his portion? 2. Find the annual amount paid by Mario. Mario’s Share = $2,500 x 35% = $2,500 x 0.35 = $875

Example Mario participates in his company’s group medical insurance plan. The annual cost of Mario’s plan is $2,500 per year. If the company pays 65 percent of the annual cost, how much is deducted from his biweekly paycheck to cover his portion? 3. Find the deduction per pay period. Deduction per pay period = $875 ÷ 26 = $33.65

Complete another worksheet on Section 2-5 Complete the worksheet on Section 2-5 How do you calculate the deduction for group insurance? Complete another worksheet on Section 2-5

Section 2-6 Statement of Earnings (pages 128 to 131) How do you calculate net pay per period?

Plus the state tax deductions, and local tax will also be deducted. Taxes and insurance are not the only things deducted from your gross pay. Union dues, contributions to community funds, saving plans, and/or other deductions might be deducted. Plus the state tax deductions, and local tax will also be deducted.

An earnings statement lists your gross pay, all your deductions, and your net pay for each pay period. Net pay is the amount you have left after all tax withholdings and personal deductions have been subtracted.

NOTE Use the tax tables for federal income tax. Use the Social Security tax rate of 6.2% on the first $84,900 earned. Use the Medicare tax rate of 1.45% on ALL earnings.

How do I calculate net pay? Gross Pay - Total Deductions . Net Pay

Example Isaac’s gross weekly salary is $515. He is single and claims one allowance. The state tax is 2.8 percent of gross pay with no personal exemptions allowances. Isaac also participates in his employer’s medical insurance plan, which cost him $16.83 per week. What is his net pay for the weekly pay period? 1. Find Isaac’s total deductions. Use the tables to determine federal income tax. Federal Income Tax Withheld = $55.00

Example Isaac’s gross weekly salary is $515. He is single and claims one allowance. The state tax is 2.8 percent of gross pay with no personal exemptions allowances. Isaac also participates in his employer’s medical insurance plan, which cost him $16.83 per week. What is his net pay for the weekly pay period? 1. Find Isaac’s total deductions. Calculate Social Security Tax Withheld S.S. Tax Withheld = $515 x 6.2% = $515 x 0.062 = $31.93

Example Isaac’s gross weekly salary is $515. He is single and claims one allowance. The state tax is 2.8 percent of gross pay with no personal exemptions allowances. Isaac also participates in his employer’s medical insurance plan, which cost him $16.83 per week. What is his net pay for the weekly pay period? 1. Find Isaac’s total deductions. Calculate Medicare Withheld Medicare Withheld = $515 x 1.45% = $515 x 0.0145 = $7.47

Example Isaac’s gross weekly salary is $515. He is single and claims one allowance. The state tax is 2.8 percent of gross pay with no personal exemptions allowances. Isaac also participates in his employer’s medical insurance plan, which cost him $16.83 per week. What is his net pay for the weekly pay period? 1. Find Isaac’s total deductions. Calculate State Tax Withheld State Tax Withheld = $515 x 2.8% = $515 x 0.028 = $14.42

Example Isaac’s gross weekly salary is $515. He is single and claims one allowance. The state tax is 2.8 percent of gross pay with no personal exemptions allowances. Isaac also participates in his employer’s medical insurance plan, which cost him $16.83 per week. What is his net pay for the weekly pay period? 1. Find Isaac’s total deductions. Total Deductions = fed. tax + s.s. + medicare + state tax + medical ins. = $55.00 + $31.93 + $7.47 + $14.42 + $16.83 = $125.65

Net Pay = Gross Pay - Total Deductions Example Isaac’s gross weekly salary is $515. He is single and claims one allowance. The state tax is 2.8 percent of gross pay with no personal exemptions allowances. Isaac also participates in his employer’s medical insurance plan, which cost him $16.83 per week. What is his net pay for the weekly pay period? 2. Find Isaac’s net pay. Net Pay = Gross Pay - Total Deductions = $515.00 - $125.65 = $389.35

How do you calculate net pay per period? Complete the worksheet on Section 2-6 How do you calculate net pay per period? Complete another worksheet on Section 2-6

Chapter 2: Net Pay Test Multiple choice May use your red folder May use a calculator Must work alone