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

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

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)

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

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)

DETERMINE TAXES What company withholds: If Married, paid Semi-monthly (2 times a month) , claimed 2 allowances with total earnings of $1137.00 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

EMPLOYEE’S INCOME TAX WITHHOLDING – MARRIED PERSONS If Married, with 2 allowances with total earnings of $1137.00 1. Select the appropriate table – Married or Single Find row where Earnings falls between Move Across to row with allowances - Grids Updated Yearly

PRACTICE Examples: If Single, paid Semi-monthly (2 times a month) , claimed 2 allowances with total earnings of $1137.00 Fed Tax: Soc. Sec. Tax Medicare Tax If Married, paid Semi-monthly (2 times a month) , claimed 0 allowances with total earnings of $1885.00 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 $1268.00 If Single, paid Semi-monthly (2 times a month) , claimed 2 allowances with total earnings of $1080.00

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

LESSON 12-2 4/20/2017 CALCULATE THE TAX RATE Calculate Social Security for gross wage of $1137 How much does employee pay? 70.494 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 16.4865 = round up to $16.49 $16.49 Total Medicare tax that employer pays to government? $32.92 Problem 1: Employee pays 97.34 for Social Security Employer pays 97.34 Ttoal Social Security = 194.68 Medicare: 22.765 rounds to $22.77 Employer pays $22.76 Total Medicare: 45.52

CALCULATE THE TAX RATE Calculate taxes on section in notes.

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

Review WTG 12-2