1. Section 2Payroll Deductions What You’ll Learn  Why deductions are calculated and reported.  How to calculate deductions required by the federal government.  How to determine voluntary deductions. What You’ll Learn  Why deductions are calculated and reported.  How to calculate deductions required by the federal government.  How to determine voluntary deductions.

2. Why It’s Important To prepare the payroll accurately and to comply with the law, both mandatory and voluntary deductions must be calculated correctly. Why It’s Important To prepare the payroll accurately and to comply with the law, both mandatory and voluntary deductions must be calculated correctly. Section 2Payroll Deductions (cont'd.) Key Terms  deduction  allowance  401(k) plan Key Terms  deduction  allowance  401(k) plan

3. Computing Employee-Paid Withholdings  An amount that is subtracted from gross earnings is called a deduction.  Deductions include those required by law and those an employee wishes to have withheld from earnings.  An amount that is subtracted from gross earnings is called a deduction.  Deductions include those required by law and those an employee wishes to have withheld from earnings. Section 2Payroll Deductions (cont'd.)

4. Deductions Required by Law  Federal Income Tax  Social Security Tax  State and Local Income Taxes  Federal Income Tax  Social Security Tax  State and Local Income Taxes Section 2Payroll Deductions (cont'd.)

5. Federal Income Tax The amount withheld for federal income taxes depends on three factors: Federal Income Tax The amount withheld for federal income taxes depends on three factors:  the employee’s marital status  the number of allowances claimed by the employee  the employee’s gross earnings  the employee’s marital status  the number of allowances claimed by the employee  the employee’s gross earnings Section 2Payroll Deductions (cont'd.)

6. Social Security Tax There are two FICA taxes: social security and Medicare. The tax rates are as follows: Social security tax6.20% Medicare tax1.45% Total FICA taxes7.65% (Deducted from each employee’s earnings until the maximum taxable earnings amount for the year is reached. This amount increases each year.) Social Security Tax There are two FICA taxes: social security and Medicare. The tax rates are as follows: Social security tax6.20% Medicare tax1.45% Total FICA taxes7.65% (Deducted from each employee’s earnings until the maximum taxable earnings amount for the year is reached. This amount increases each year.) Section 2Payroll Deductions (cont'd.)

7. State and Local Income Taxes Section 2Payroll Deductions (cont'd.)  In some states and cities, the tax rates are set as a percentage of gross earnings.  In others, the amounts to be deducted are indicated on tables similar to the ones used for federal income tax.  In some states and cities, the tax rates are set as a percentage of gross earnings.  In others, the amounts to be deducted are indicated on tables similar to the ones used for federal income tax.

8. Voluntary Deductions Common voluntary deductions include: Voluntary Deductions Common voluntary deductions include:  union dues  health insurance payments  life insurance payments  pension and other retirement contributions  credit union deposits and payments  U.S. savings bonds  charitable contributions  union dues  health insurance payments  life insurance payments  pension and other retirement contributions  credit union deposits and payments  U.S. savings bonds  charitable contributions Section 2Payroll Deductions (cont'd.)

9. Check Your Understanding Which taxes are required to be withheld from employees’ pay? Section 2Payroll Deductions (cont'd.)