# Consumer Math Class East Jackson High School 2015

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Consumer Math Class East Jackson High School 2015
Tax Unit: Module 1 Consumer Math Class East Jackson High School 2015

Module 1: Payroll Taxes and Federal Income Tax Withholding
Introduction Payroll taxes include the Social Security tax and the Medicare tax. The Medicare tax is used to provide medical benefits for certain individuals when they reach age 65. Federal income taxes are used to provide for national programs.

Do you need to file?

Social Security Tax The Social Security tax is also called the FICA (Federal Insurance Contributions Act) tax. Social Security taxes provide the following: Retirement benefits Benefits for the dependents of retired workers Benefits for the disabled and their dependents

Medicare Tax Provides medical benefits for certain individuals when they reach 65. Individuals eligible: workers retired workers spouses of workers and retired workers

Federal income taxes finance:
National defense, veterans, and foreign affairs Social programs Physical, human, and community development Law enforcement Interest on the national debt

Gross Pay and Net Pay Gross pay = the total amount an employee earns
Net pay (Take-home pay) = amount the employee receives after money has been withheld for: Social Security taxes Medicare taxes Income tax (Federal, State, and/or City) Other withholdings Employers send the withheld taxes to the taxing authorities.

Payroll Taxes 2014 Payroll Tax Rates Social Security tax rate 6.20%
Medicare tax rate % Total payroll taxes % There is a maximum annual amount of Social Security tax withheld per employee. Social Security taxes are not withheld on amounts over the earnings limit. For 2014, the earnings limit was \$117,000, and the maximum Social Security tax was \$7,254 (\$117,000 x 6.2%). There is no limit on the amount of wages subject to Medicare tax.

Form W-4 Employees complete Form W-4, Employee’s Withholding Allowance Certificate. Employers use Form W-4 to determine how much federal income tax to withhold.

Withholdings depend on:
The employee’s marital status The number of withholding allowances claimed by the employee. The more allowances, the less \$ withheld. Any additional amount the employee wants to withhold Any exemptions from withholding that the employee claims.

Example W-4

Example Angela Viviano earns \$2,000 a month as a physical therapist’s assistant. Angela’s net pay is calculated as follows: Gross Pay \$2,000 Social Security (6.2%) -\$124 Medicare (1.45%) -\$29 Income Tax (per W-4) -\$237 Retirement -\$50 Net Pay \$1,576 Her employer sends \$390 (\$124 + \$29 + \$237) to the federal government and \$50 to the retirement fund.

Quick Check! ____1. Which tax provides for medical benefits?
a. FICA tax b. Federal income tax c. Social Security tax d. Medicare tax ____2. How much income tax do employers withhold from employee pay? a. 6.2% of gross pay b % of gross pay c % of gross pay d. Employers use the information on Form W-4 to compute income tax withholding. ____3. Net pay a. is more than gross pay. b. is also known as take-home pay. c. is gross pay minus 7.65% d. depends on how much the employee wants to pay in Social Security taxes.

Ahmed Khan b 3 50 Who completed Form W-4? _______________
____2. Is the taxpayer married or single? a. Married b. Single c. Divorced d. Widowed How many allowances does the taxpayer claim? _____ How much additional tax does the taxpayer want to be withheld? _________ b 3 50

Review Questions ____1. Employees decide when to pay their payroll taxes. a. True b. False ____2. Federal income taxes are used to pay the interest on the national debt. ____3. In 2014, the Medicare tax rate was 1.45% of gross pay. ____4. Employees use Form W-4 to prove that they are eligible to work in the United States.

Simulation for Module 1 Learn how to complete a Form W-4
Your name is Lawrence Red Owl. You have just recently graduated from college with a marketing degree. On the 1st of next month you will start your new job as manager of a clothing store in a mall. You will get a weekly salary plus a bonus based on the store’s sales.

Use the following information to fill out the Form W-4 given in your packet.
Marital Status: Single Children: None U.S. citizen: Yes Dependents other than above: None Social Security Number: Address: 5022 Oak Tree Dr. Anytown, US 00001

You’ve just finished Module 1!
Congratulations! You’ve just finished Module 1! All information came from the Internal Revenue Service Understanding Taxes Program