Chapter 2 Net Pay

2.1 Deductions from Gross Pay

Federal Withholding Tax Deduction Deductions-Subtractions from gross pay Withholding taxes-income taxes Amount of taxes depends on: Wages Marital status Number of withholding allowances claimed Withholding allowance-used to reduce the amount of tax withheld

Social Security & Medicare Tax Deductions FICA benefits include: Disability benefits Medicare Retirement benefits Survivor’s benefits Social Security is 6.2% for first $87,900 Medicare is 1.45% for all wages Combined FICA is 7.65% (6.2% + 1.45%)

C. $24,000 x 0.0765 = D. $87,900 x 0.062 = $89,000 x 0.0145 = E. $460 x 0.0765 = F. $712.44 x 0.0765 = G. $1,087.30 x 0.0765 = H. $375.88 x 0.0765 =

Total Deductions and Net Pay Withholding Taxes Social Security Medicare Other Deductions Net Pay = Take Home Pay Gross Pay – Deductions = Net Pay

$410 x 0.0765 = $410 – 39 – 31.37 - 34.88 - 40 = J. $820 x 0.0765 = $810 – 118 – 61.97 – 74 – 45 =

2.2 Benefits and Expenses

Total Job Benefits Employee benefits – Fringe benefits What are some examples of job benefits?

Benefit 1 + Benefit 2 = Total Employee Benefits Benefit Rate x Gross Pay = Total Employee Gross Pay = Employee = Total Job Benefits Benefits

A. 1. $2,580 + $3,133 + $2,545 = 2. $31,807 + $8,258 = B. $28,089 x 0.33 = 28,089 + 9,269.37 =

Net Job Benefits Job Expenses - Examples Total Job – Job Expenses = Net Job Benefits Benefits C. $56,102 – 329-278-475-1,077 = D. 78,299-580-1,793-2,057 =

Comparing Net Job Benefits E. Job 1 41,700 x 0.32.5 = 41,700 + 13,552.5 = 55,252.50 – 3,180 = Job 2 45,260 x 0.24 = 45,260 + 10,862.40 = 56,122.40 – 3,740 =

F. Job 1 49,500 x 0.29 = 49,500 +14,355 = 63,855 – 650-1,890-375-480 = Job 2 45,200 x 0.34 = 45,200 + 15,368 = 60,568 – 2,560 – 480 – 590 – 380 =

2.3 Federal Income Taxes

Adjusted Gross Income and Taxable Income From 2.1 – withholding taxes taken out of paycheck every pay period Dec 31 end of year and federal income tax returns prepared for April 15 Tax returns based on income earned and taxes due Withholding taxes are used here

Gross Income – Total income in a year Adjustments are subtracted from income. Include business losses, payment to retirement plan, alimony and certain penalties. Adjusted Gross = Gross Income – Adjustments Income to Income Taxable Income – income you actually pay taxes on Taxable = Adjusted Gross - Deductions & Income Income Exemptions

Deductions – Expenses that reduce the amount of your taxable income Which is more standard deductions or itemized, use the bigger of the two. Standard deductions: $4,850 for individual $9,700 for married filing jointly Exemption is an amount of income per person that is tax free $3,100 per person

AGI 65,000 - Ded 4,850 - Exe 3,100 Tax Inc B. AGI 50,000 - Ded 10,500 - Exe 9,300

Income Tax Due Get a refund if paid too many taxes – remember withholding taxes from paychecks Pay in if didn’t pay enough taxes through the year Use the tax tables on pg. 56

C. From tax table 1,679 2,340 – 1,827 = refund or pay in? D. 2,874 from tax table 2,874 – 2,509 = refund or pay in?

2.4 State and City Income Taxes

State and City Flat Income Tax Flat tax is the same tax to everyone usually stated as a % of earnings 34,100 x 0.015= 29,900 x 0.028 =

State & City Graduated Income Taxes As your income goes up the amount of taxes you pay goes up C. 43,600 - 40,000 = 3,600 x 0.07 = 1,600 + 252 = D. 38,200 – 32,000 = 6,200 x 0.06 = 1,120 + 372 =

2.5 Cash Receipts and Payment Records Cash receipts records – Written records of $ received A.

B. 154.40 +83.75+190.45+275.90+ 150.80 =

Columnar Cash Payments Record Cash payments are written records of $ paid out C. 27.88+95.85+4.50+54.91+135.67+25+ 47.89 = D. 700+123.83+62.28+70+52.76+100=

2.6 Budgets

Expense Percentages Summarize expenses and receipts with percentages Helps to compare past, present, and future Can use specific categories to help with spending

6,400 / 128,000 = 338,200 / 475,000 =

Budgeting Budgets are future spending plans C. 0.05 x 4,500,000 = D. 0.025 x 5,489 = Fixed Income Variable Income Fixed Expenses Variable Expenses