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

2. 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:

3. 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

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

5. 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

6. 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

7. 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

8. FICA Examples Earnings Tax rates Tax Social Security $84900 6.2%$
Medicare
$87000
1.45% $
Total withheld $

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

10. 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

11. 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

12. 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?