take-home pay the deductions taken out of your paycheck help support schools, roads, national parks,...

Take-Home Pay

The deductions taken out of your paycheck help support schools, roads, national parks, and more.

Why do you think you have to pay taxes?

Lesson Objective Determine the amount withheld for federal income tax.

Content Vocabulary

federal income tax

withholding allowance

federal income tax

Money withheld by an employer from an employee’s paycheck to pay federal government taxes.

withholding allowance

The number of people an employee supports, which helps employers know how much money to withhold for federal income tax.

Examples

1. Joe is single and earns $645 weekly. What is the amount withheld for federal income tax. Use the tax table.

2. Compute the tax withheld using the percentage method.

Examples

3. Joe gets married and has a child. He is now earning $950 weekly. Using the table, compute the FIT.

4. Compute his tax using the percentage method.

Lesson Objective Compute state taxes on a straight percent basis.

Content Vocabulary

exemptionexemption

Withholding allowances, which allow for supporting yourself, your spouse, and others in your family who are your dependents.

Examples

1. Jane earns $35,000 a year. Her state income tax rate is 3.1%. What amount should be withheld from her pay for the year.

35000*.031 = $1085.00

Lesson Objective Determine state taxes on a graduated income tax basis.

Content Vocabulary

graduated income taxgraduated income tax

A system that increases the tax rate at different levels of income.

Examples

1. Frank lives in a state with a graduated income tax. The first $2000 is taxed at 1.5%, the next $5000 at 2.5%, the next $5000 at 3%, and anything above that at 3.5%. Frank earns $25000 a year. What is his tax. 2000*.015 = 30

5000*.025 = 1255000 *.03 = 15013000*.035 = 455

Total = $760

Lesson Objective Compute the amount withheld for Social Security and Medicare taxes.

Content Vocabulary

Social SecuritySocial Security

A federal government program to pay for retirement and disability benefits.Medicare

Medicare

A federal government program to provide medical insurance.

Examples

1. Harry gets a biweekly salary of $1345. What will be withheld for Social Security and Medicare taxes. (SS is 6.2% and Medicare is 1.45%)

1345*.062 = $83.391345*.0145 = $19.50

83.39+19.50 = $102.89

Lesson Objective Calculate the deduction for group insurance.

Content Vocabulary

group insuranceSocial Security

A federal government program to pay for retirement and disability benefits.

group insurance

Health insurance offered by many businesses to employees, paid in part by the business and in part by the employee.

Examples

1. The annual cost of health insurance is $7000 per year with the employer paying 70%. Mike gets paid biweekly. What is his contribution per pay period?

2. Mike pays $35.00 per pay for Dental and Vision insurance. He pays twice as much for Dental as he does for Vision insurance. How much does he pay for each?

7000*.3 = 21002100/26 = $80.77

2x + x = 363x = 36X = $12.00 Vision$24 for Dental

net pay

The amount of money you have left after your employer subtracts all tax withholdings and personal deductions from your gross pay, also called net income or take-home pay.

Lesson Objective Calculate net pay per pay period.

Content Vocabulary

net pay

Example

Deductions Rate amount

Federal Tax Use table

State 2.8%

Medicare 1.45%

Social Security

6.2%

Medical $13.80

other 3%

Jayne earns $753.00 a week. She is single and claims 1 allowance. Compute her deductions and her Take-Home pay?

$21.08

$10.92

$46.69

$22.59

Take - Home Pay for the week$753.00 – $208.08 = $544.92

$93.00

Total deductions = $208.08

SummarySummary

Types of Agencies

Pay Deductions

Your employer takes deductions from your

paycheck for the government and other

agencies.

State Income Tax Federal Income Tax

Social Security pays for retirement and disability benefits.

Group Health Insurance is often less expensive than individual

insurance.

A. $14.00

B. $15.00

C. $19.00

D. $20.00

1. Tonya Westin’s gross pay for the week is $357.89. She is married and claims no allowances. Use the table on page A4 in the text. What amount will be withheld for FIT?

2. Dwight Fisher earns $42,500. He is married with three dependents which gives him a $10,000 exemption. His state had an income tax rate of 4.5%. How much does Dwight’s employer withhold annually from his gross earnings for state income tax?

A. $450.00

B. $1,230.90

C. $1,462.50

D. $1,912.50

3. ALGEBRA Reena Garcia is a sales manager. She is single and takes a $2,000 exemption. The state income tax rate is 3%. If her employer withholds $3,900 for state income tax annually, find her annual salary.

A. $85,400

B. $101,250

C. $125,600

D. $132,000

4. Mary Jane Porter has an annual gross pay of $32,100. Her exemptions total $3,500. The state tax on the first $5,000 is 1.5% and on amounts over $5,000 is 4.2%. Find the total tax withheld.

A. $1,009.85

B. $1,066.20

C. $1,213.20

D. $1,430.85

5. Kyle Gruber’s gross pay this month is $5,432.50. His earnings to date for the year total $12,300.75. How much does his employer deduct from his paycheck this month for Social Security?

A. $336.82

B. $356.59

C. $511.85

D. $575.60

6. Sui Chun’s gross pay last week was $2,350. Her earnings to date for the year are $43,500. How much did her employer deduct from her paycheck last week for Medicare?

A. $34.08

B. $47.00

C. $58.75

D. $65.90

7. Tamara Matta’s annual group insurance costs $5,800, and her company pays 75% of the cost. How much does Tamara pay monthly for insurance?

A. $100.90

B. $120.83

C. $280.50

D. $362.50

8. ALGEBRA Danford Kayne pays $231.60 per month for his group medical coverage. His employer pays 35% of the cost. How much is the annual premium for Danford’s health insurance?

A. $2,779.20

B. $3,843.10

C. $4,275.69

D. $5,904.33

9. Erika Morley’s gross weekly salary is $825.75. She is married with no dependents. The following deductions are made each week: $31.00 for federal tax; 6.45% for Social Security and 1.45% for Medicare; $42.50 for medical insurance. The state tax rate is 1.5% of gross. What is Erika’s net pay?

A. $543.96

B. $550.76

C. $612.09

D. $676.69

10. ALGEBRA The deductions from Allana Cole’s monthly pay are federal income tax of $98, state income tax of 2.1%, city income tax of 1.1%, Social Security of 6.45%, and Medicare of 1.45%. Her monthly net pay is $2,754.80. Find Allana’s monthly gross pay.

A. $2,900

B. $3,200

C. $3,500

D. $4,000

End of

Chapter 2Net Income