Ms. Alltucker Accounting II

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Presentation transcript:

Ms. Alltucker Accounting II Ch. 12 Section 2 Ms. Alltucker Accounting II

12-2 Learning Objectives What you will learn: Why it’s important: Why deductions are calculated and reported. How to calculate deductions required by the federal government. How to determine voluntary deductions Why it’s important:

Computing Employee-Paid Withholdings Deductions required by law Federal Income tax Based on an estimate of the amount of income tax the employee will actually owe Depends on marital status Number of allowances claimed by employee Gross earnings Allowance reduces the amount of income tax withheld Some people are exempt—read on page 294 on how to be exempt

Federal Income Tax Tax table Use figure 12-4 on pg. 294

Computing Employee-Paid Withholdings Social Security Tax Also known as FICA taxes Provides income for: Old-age and disability insurance programs provided to retired and disabled persons and their dependent children Survivors’ benefits program provides income to the spouse and dependent of a deceased worker Medicare—health insurance benefits for the elderly

FICA taxes Set tax rates set by the federal government—can be changed at any time Social security 6.2% Medicare 1.45% ***take these percentages by the gross earnings

Social Security Maximum taxable earnings amount for each year $84,900 (2002) for the textbook $113,700 (2013) Once a person makes over this amount in one year---no longer taxed for the remainder of that year

FICA Examples Earnings Tax rates Tax Social Security $84900 6.2% $5263.80 Medicare $87000 1.45% $1261.50 Total withheld $6525.30

State and Local Income Taxes Tax rates are set as a percentage of gross earnings

Voluntary Deductions Union dues Health insurance payments Life insurance payments Pension and other retirement contributions Credit union deposits and payments US savings bonds Charitable contribution

Voluntary Deductions 401(k) plan Popular payroll deduction Employee contributes a portion of gross earnings to an account Does not pay income tax on these contributed earnings Taxable income is reduced

Thinking Critically 1. Which taxes are required to be withheld from employees’ pay? What three factors determine the amount of federal income tax withheld each pay period?