Payroll Deductions

CONT 110

Terms you will use

• • • • • • • • • • • • Accumulated Earnings Employee’s Earnings Record Employee’s Withholding Allowance Certificate Federal Income Tax (FIT) Federal Insurance Contributions Act (FICA) Net Pay Payroll Register Percentage Method Pre-Tax Deductions State and Local Income Tax Withholding Taxable Earnings Wage Bracket Method

Calculate Social Security and Medicare withholding

• 2010 FICA rates: – Social Security wage base as January 2010 $106,800 – Maximum social security an employee would pay in 2010 - $6,622 ($106,800 * 6.2%) – Medicare has no wage base (all wages are subject to the 1.45% tax) – Employers must match the amount of FICA tax deducted from each employee’s wages.

Calculate Social Security and Medicare withholding

• • • For Social Security tax, multiply gross earnings per pay period times 6.2% on the first $106,800 earned.

For Medicare tax, multiply gross earnings per pay period times 1.45% Social Security tax plus Medicare tax equals FICA withheld

Find the federal income tax withholding using the percentage method

• Requires fewer tables to calculate the federal taxes

Percentage Method – 2010 Amount for One Withholding Allowance Payroll Period One Withholding Allowance

Weekly Biweekly $70.19

140.38

Semimonthly Monthly Quarterly Semiannually Annually Daily or miscellaneous (each day of the payroll period) 152.08

304.17

912.50

1,825.00

3,650.00

14.04

Find the federal income tax withholding using the percentage method

Tables for Percentage Method of Withholding (For Wages Paid in 2010)

(a) SINGLE person (including head of household) – If the amount of wages (after subtracting withholding allowances) is:

Table I – WEEKLY Payroll Period

The amount of income tax to withhold is: (b) MARRIED person – If the amount of wages (after subtracting withholding allowances) is: The amount of income tax to withhold is: Not over $116 $0 Not over $264 $0 Over But not over Over But not over Of excess over $116 $200 $200 $693 10% $8.40 plus 15% Of excess over - $116 - $200 $264 $471 $471 $1,457 $693 $1,302 $1,624 $1,687 $3,344 $7,225 $1,302 $1,624 $1,687 $3,344 $7,225 $82.35 plus 25% $234.60 plus 27% - $1,302 $321.54 plus 30% - $1,624 $340.44 plus 285 - $693 -$1,687 $804.40 plus 33% - $3,344 $2,085.13 plus 35% - $7,225 $1,457 $1,809 $2,386 $2,789 $4,173 $7,335 $1,809 $2,386 $2,789 $4,173 $7,335 10% $264 $20.70 plus 15% $168.60 plus 25% $256.60 plus 27% $412.39 plus 25% $513.15 plus 28% $900.66 plus 33% $1,944.12 plus 35% $471 $1,457 $1,809 $2,386 $2,789 $4,173 $7,335

Find the federal income tax withholding using the percentage method • Frank Rodriguez, married, claims for withholding allowances, and has weekly gross earnings of $1,230

Four Steps Problem solving Plan

Clues Frank is paid weekly Action Plan Locate the withholding allowance for one person Frank claims 4 withholding allowances Multiply the single withholding allowance by the number of allowances Frank’s gross earnings are $1,230 Frank is married Solve $70.19

$70.19 X 4 = $280.76

Subtract the amount allowed for withholding allowances from Frank’s gross earnings $1,230 - $280.76 = $949.24

$20.70 + 15% over $471 Find the MARRIED person section Subtract $471 from Frank’s net gross earnings of $949.24

$949.24 - $471 = $478.24

Multiply 15% times the amount over $471 Add the base withholding $20.70 to the 15% $478.24 X 15% = $71.74

$20.70 + $71.74 = $92.44

Find the federal income tax withholding using the wage bracket method

• • • Based on a person’s total gross earnings, marital status, and number of allowances claimed Form W-4 (Employee’s Withholding Allowance Certificate) Withholding Tax Table

Find the state income tax withholding

• • • Seven states do not have state income tax – Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming State income tax is collected by withholding Example: – Terri Adams has gross earnings for the month of $3,100. If her state has a 4.5% income tax rate, find the state withholding tax.

• $3,100 X 0.045 = $139.50

Find the amount paid to the Internal Revenue Service (IRS) each payroll tax period • Each payroll period employers send to the IRS the amount of employee’s Social Security withheld, a matching amount, and the amount of federal income tax withheld from employee’s gross pay.

$76.12

$76.12

+ $85.00

$237.24

Employee Social Security and Medicare withheld Employer matching Social Security and Medicare Employee federal income tax withheld Total send to the IRS (money is actually deposited into the Federal Treasury)

Ejercicio de práctica

1. Entre la fórmula para calcular las deducciones por Seguro Social y copiela a las celdas correspondientes 2. Entre la fórmula para hallar las deducciones por Medicare 3. Utilice la tabla del Wage Bracket Method para calcular el impuesto federal 4. Escriba la fórmula necesaria para calcular el impuesto estatal

Referencia bibliográfica

• “Business Math using Excel”, Burton / Shelton, South-Western