How does your employer know how much to take out of your paycheck for deductions? PowerPoint Presentation, PPT - DocSlides
Take-Home Pay. The deductions taken out of your paycheck help support . schools, roads, national parks, and more.. Why do you have to pay taxes?. Deductions – Memorize these. 1.0% - Local. 7.65%- Total Social Security and Medicare. ID: 670327Direct Link: Embed code:
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Presentations text content in How does your employer know how much to take out of your paycheck for deductions?
How does your employer know how much to take out of your paycheck for deductions?Slide2
The deductions taken out of your paycheck help support
schools, roads, national parks, and more.
Why do you have to pay taxes?Slide3
Deductions – Memorize these
1.0% - Local
7.65%- Total Social Security and Medicare6.2% - Social Security Normally4.2% - Social Security currently (until January 1, 2013)1.45%- Medicare3.07% - PA State Tax.08%- PA Unemployment TaxWhy isn’t Federal listed? Base on three things (W-4 form) Employees withholding allowance certificate. Marital Status, Earnings, Allowances you claimSlide4
Take heart, America. Even celebrities pay taxes on April 15.Well, sometimes.
Nicolas Cage’s bookkeeping got a bit muddled, and now he has to shell out $13.3 million to the federal government.
Joe Francis, founder of “Girls Gone Wild,” forgot, too. His tab? $29.4 million -- or roughly 5 million margaritas.Sinbad the Comedian? A very unfunny $8.15 million, which doesn't even include interest and legal fees.Other celebs who owe the taxman big bucks are Pamela Anderson ($1.7 million), the rapper Nas ($3.4 million), singer Dionne Warwick ($2.2 million) and actor Terrence Howard ($1.1 million). (Click here to see some of the celebs on the IRS’ hit list)Celebrity Tax Evaders Hit ListSlide5
Married Filing Joint
Head of Household
Up to $8,600
Up to $17,200
Up to $12,250
$8,601 – $34,900
$17,201 – $69,800
$12,251 – $46,750
$34,901 – $84,500
$69,801 – $140,850
$46,751 – $120,700
$84,501 – $195,950
$140,851 – $237,700
$120,701 – $216,800
$195,951 – $383,350
$237,701 – $383,350
$216,801 – $383,350
Gross Income - Deductions = Net Income (take home pay)
Mandatory:Federal – FIT (W-4: marital status, amount of income, exemptions)PA state – 3.07% (.0307)Local – 1.0% (.01)Social Security – normally, 6.2% (.062) (first $110,100), currently 4.2% (.042) for employees.Medicare – 1.45% (.0145)PA Unemployment Tax - .08% (.0008)Voluntary:Medical, savings, investing, scholarship, etc.Slide7
Starting a New Job
To receive a paycheck, an employee must:
Complete a Form W-4 Employee’s Withholding Allowance CertificateComplete a Form I-9Employment Eligibility VerificationSlide8
Personal exemptions in dollar amounts
2011: $3,7002010: $3,6502009: $3,6502008: $3,5002007: $3,4002006: $3,300DependentsYourselfSpouseBlood relativesDonations Mortgage interestEtc.Slide9
Employee’s Withholding Allowance Certificate
Determines the percentage of gross pay which will be withheld for taxesWithholding AllowancesThe number of people an employee supports.Used to determine the amount of federal taxes withheld from the paycheckThe more allowances you claim on Form W-4, the less income tax your employer will withhold. You will have the most tax withheld if you claim “0” allowances.Dependent – a person who relies on the taxpayer for financial support2012 W-4 FormSlide10
Steps to Completing a Form W-4
Print or type legal name on
Line 1 and home address directly below the nameWrite Social Security number on Line 2On Line 3, check the appropriate box to indicate marital statusComplete the “Personal Allowances Worksheet” above the form (A-H)Enter a one or a zero on Line 5 Can you claim exempt on Line 7? See “Exemption from Withholding” handout.Slide11
Steps to Completing a Form W-4 continued
. Sign name and date the form before giving it to the employer8. Keep a copy for personal recordsRemember: The more allowances you claim on Form W-4, the less income tax your employer will withhold. You will have the most tax withheld (deducted) if you claim “0” allowances.**Exempt,….. 6, 5, 4, 3, 2, 1, 0 ( moving left to right, more money will be deducted, from zero to maximum)** no federal taxes in last year, less than $5700 earned and $300 unearned incomeSlide12
Form I-9 (copy attached to W-4)
Employment Eligibility Verification Form
Used to verify the eligibility of individuals to avoid hiring undocumented workers or others who are not eligible to work in the United StatesMust provide documentation which establishes identity and employment eligibilityExamples include driver’s license, passport, Social Security card, and birth certificateSlide13
Who’s responsible for all this?????Slide14
Answer: President Abe LincolnSlide15
Three common methods employers may use to
pay employees:Paycheck- Employee responsible for handling the paycheckImmediately see payroll stub and deductionsSlide16
Paying Employees continued
Employers directly deposit employee’s paycheck into the authorized employee’s depository institution accountEmployee receives the paycheck stub detailing the paycheck deductionsMost secure because there is no direct handling of the check Employee knows exactly when paycheck will be deposited and availableSlide17
Paying Employees continued
Payroll Card-A payroll card electronically carries the balance of the employee’s net payFunds are directly deposited by an employer into an account at a depository institution that is linked to the payroll cardUse the payroll card for ATM withdrawals or to make purchasesSlide18
Do you understand everything you see on your paycheck stub?Slide19
A document included each pay period which outlines paycheck deductionsOn-The-Go
293 Michael Grove
Billings, MT 59102
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Pay Period 6/11/2009-7/11/2009Slide20
States the employee’s full name, address, and Social Security numberAlways check to ensure this information is correctSlide21
The length of time for which an employee’s wages are calculated; most are weekly, bi-weekly, twice a month, or monthlyThe last day of the pay period is not always your payday to allow a business to accurately compute wagesSlide22
The amount of money subtracted from the gross pay earned for mandatory systematic taxes, employee sponsored medical benefits, and/or retirement benefitsSlide23
Determine the amount withheld for federal income tax.
Who collects the taxes?Slide24
Internal Revenue Service
(IRS) – Collects federal taxes, issues regulations, and enforces tax laws written by the United States Congress.Slide25
1993 - 2000
Your tax bracket depends on your
income and your filing status
. 1993 saw a tax hike on the wealthy (via two new brackets), and then 2001 through 2003 saw a series of tax cuts that lowered some of the tax brackets.
Federal Tax BracketsSlide26
If Taxable Income Is:
The Tax Is:
over $8,50010% of the taxable incomeOver $8,500 but not over $34,500$850 plus 15% of the excess over $8,500Over $34,500 but not over $82,250$4,750 plus 25% of the excess over $34,500Over $
but not over $174,400
$17,025 plus 28% of the excess over $83,600
Over $174,400 but not over $379,150
$42,449 plus 33% of the excess over $174,400
$110,016.50 plus 35% of the excess over $379,150
To take an example, suppose your taxable income (after deductions and exemptions) was exactly $100,000 in
and your status was Single, then your tax would be calculated like this:
($ 8,500 minus
x .10 :
(you are taxed 10% on the first $8,350 of your earnings)
x .15 :
(you are taxed 15% on earnings between $34,500 and $8,500)
x .25 :
x .28 :
This puts you in the
tax bracket since that's the highest rate applied to any of your income.
Even though you are in the 28% tax bracket, you did not have
your income taxed at 28%, as you can see by this example.Slide28
Federal Income (Withholding) Tax
Federal Income (Withholding) Tax
The amount required by law for employers to withhold from earned wages to pay taxesThe amount of money deducted depends on the amount earned and information provided on the Form W-4Slide29
Question:How does my employer figure out how much to take out of each of my paychecks for Federal taxes?
There are two main methods:1. Tax charts2. Percentage methodSlide30
Using Tax Charts to Calculate Federal Withholding
You have a copy of tax charts in the back of your book on pages A4 and A5
These may not be exact so please do not use them to calculate your own federal taxesI will give you a handout also to eliminate flipping to the back of your book while doing your class workUse the tax charts given to you to find the answers to the following examples. Be sure to note that there are different charts for single and married personsSlide31
Example 1:Carla’s gross pay for this week is $425.88. She is married and claims 2 allowances—herself and her husband. What amount will be withheld from her pay for Federal Income Taxes?
Find the income range from the table for Married Persons
payroll period. (Appendix A4-A5 or handout)
Find the column for 2 allowances.
The amount of income to be withheld is
Lance’s gross pay for this week is $460.00. He is single and claims one allowance. What amount will be withheld from Lance’s pay for FIT?
Find the income range from the table for Single Persons weekly payroll period.Income range: 460-470
Find the column for 1 allowance.
The amount of income to be withheld is
Complete the examples on your notes.
How much is withheld from the weekly wage of a married person earning $297 with 1 withholding allowance?
$8How much is withheld from the weekly wage of a married person earning $379 with 2 allowances?$9How much is withheld from the weekly wage of a single person earning $238 with no allowances?$20How much is withheld from the weekly wage of a single person earning $318 with 5 allowances?$0Slide34
Section 2.1, p. 131
Problems 5 -12Slide35
What do you think
about the “ fair tax” ?Slide36