Chapter 2 Net Income Mr Conway Thinking What

Chapter 2 Net Income Mr. Conway

Thinking…. • What are Taxes? • How do you think taxes will affect your lives? • How will knowing that a certain portion of their income goes to taxes affect spending, saving and career choices?

TAXES Taxes are payments of money to the government that provide public goods and services for the community programs, sanitation, law enforcement, and education. Your city (local), state and country (federal) collect taxes to pay for services they provide, as well as operating costs.

REASON FOR TAXES (CON’T) Local • Local taxes pay for fire and police protection, schools, local social programs, parks, water and sewage systems, and other services you receive. State • State taxes pay for colleges, prisons, social programs, parks, state police, government officials and workers, and other statewide services and programs. Federal • Federal taxes pay for all the major government agencies, including the armed forces. The federal government also collects Social Security/Medicare (FICA), which goes into a fund upon which you can get benefits after you are 65 -years old.

Other Types of Taxes Sales taxes • In some areas in the United States, there is also a sales tax. You are charged an extra 5% on your purchases. If you buy $500 worth of goods in a month, you have paid an extra $25 in sales tax. School Tax • Pays for buses, teachers & all school services Property tax • If you own a home, you are required to pay a yearly tax, usually on the assessed value of your house. If you are renting, you are really paying a hidden tax that is part of your rent. If the property tax goes up, the landlord will increase your rent a comparable amount. • NOTE: school & property tax are not take out of your paycheck

Taxes on Purchases • State and local taxes are added to the purchase price of goods. • Excise tax is imposed on specific goods and services o o o Gasoline Cigarettes Alcohol Tires Air travel Telephone service

Federal Income Tax • 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.

WHAT IS A form W-4? • Tells government how much tax to withhold from your paycheck • This form asks for your name, address, Social Security number, marital status, and the number of exemptions you claim for income tax purposes.

Federal Income Tax • What does federal income tax pay for? • Do you think its fair that we have to pay federal taxes?

Federal Income Tax • Carla Good is an actuary. Her gross pay for the week is $425. 88 She is married and claims 2 allowances for herself and her husband. What amount will Carla’s employer withhold from her pay for FIT? • Go to Pg. A 4 - A 5 in the back of book. 1. Find the income range from the table. (It is at least $420 but less than $430). 2. Find the column for 2 allowances. 3. Find the amount of federal tax to be withheld. $14. 00

Practice 1. Dan, a welder, is married, claims 1 allowance, and earns $390. 50 $18 2. Angie an executive assistant, is single, claims 2 allowances, and earns $435. 95 $31

Classwork • Textbook page 131 • #’s 5 -12 • Workbook page 18 • #’s 1 -4

Do Now • George provides childcare in his home. He charges $5 an hour per child. On Tuesday he cared for Amy for 3 hours, Itsu for 4 hours, Kaylee for 6 hours, and Jasmine for 4 hours. What was his total pay? • (3 x 5)+(4 x 5)+(6 x 5)+(4 x 5)=85

Lesson Objective Compute state taxes on a straight percent basis. Content Vocabulary exemption Withholding allowances, which allow for supporting yourself, your spouse, and others in your family who are your dependents.

State Income Tax • What do state taxes pay for? • Why do we have to pay federal tax and state tax? • They are separate layers of government, state and federal. State employees/programs and federal employees/programs are paid for from different funds.

Example • Tony Raymond’s gross pay as a landscape designer is $44, 750 a year. That state income tax rate is 3% of taxable wages. He takes an exemption for himself and 1 exemption for his child. How much does Tony’s employer withhold yearly from his gross earnings for state income tax? Exemptions 1. Find the taxable wages. o A. Annual Gross Pay – Exemptions $44, 750 -($2, 000+$2, 000)=$40750 2. Find the annual tax withheld. o Taxable Wages x Tax Rate o $40, 750 x 3%= $1, 222. 50 Single $2, 000 Married $4, 000 Each Dependent $2, 000

Practice • • • Gross pay: $23, 760 Married with 3 dependents State income tax rate: 4% $23, 760 -(4000+6000)=$13, 760 x 4%=$550. 40 • • • Gross pay: $43, 300 Single with 1 dependent State income tax rate: 5% $43, 300 -(2000+2000)= $39, 300 x 5%= $1, 965 Exemptions Single $2, 000 Married $4, 000 Each Dependent $2, 000

Classwork • Text Book page 133 o #’s 5 -8 • Text Book page 134 o #’s 11 - 17

Gross Pay - Exemptions $7, 000 - $4, 000 Do Now = Taxable Wage = $3, 000 x Tax Rate = x 2% = Tax Withheld $60

Example 1. Jeff Falls, heating system salesman, is single with 3 dependents. He earns $57, 900 annually, and his state’s tax rate 3%. What is his annual state income tax? o 57, 900 -(2000+6000)= $49, 900 o 49, 900 x 3%= $1, 497 Exemptions Single $2, 000 Married $4, 000 Each Dependent $2, 000 o What is the total amount of exemptions? • $8, 000 o What is the total taxable wage? • $49, 900

Example 1. Julie Bookwalter is single, claims 1 dependent, and earns $32, 300 annually. The state tax rate is 2. 5%. What is her annual state income tax? • 32, 300 -($2, 000+2000)= $28, 300 o $28, 300 x 2. 5% = $707. 50 Exemptions Single $2, 000 Married $4, 000 Each Dependent $2, 000

Classwork • Worksheet Handout

Do Now • Chris earns $494 per week. He is married and claims 1 child as a dependent (Exemptions $6, 000). The state tax rate is 2. 25% of taxable income. What amount is withheld annually from his pay for state income tax? • $494 x 52= $25, 688 • $25, 688 - $6, 000= $19, 688 • $19, 688 x 2. 25%= $442. 98

2. 3 Graduated State Income Tax • Graduated income tax- is a system that increases the tax rate at different levels of income. • Formula o Tax withheld per pay period= Annual tax withheld/Number of pay periods per year

Flat Tax vs Graduated Tax? • Flat tax: Everyone pays the same % rate • Graduated Tax: the more $$ you make, the higher % you pay in taxes (based on a scale) • VIDEO

IRS “Graduated” Tax Bracket for Individuals Tax Bracket Single 10% Bracket $0 – $9, 525 12% Bracket $9, 526 – $38, 700 22% Bracket $38, 701 – $82, 500 24% Bracket $82, 501 – $157, 500 32% Bracket $157, 501 – $200, 000 35% Bracket $200, 001 – $500, 000 37% Bracket $500, 001+ Which do you like better- Graduated or Flat Tax? WHY?

Your turn: calculate the SINGLE TAX owed on $90, 000 Tax Bracket Single • First $9, 525 of income is taxed at 10% • Income of $29, 175 (38, 700 - 9, 525) is taxed at 12% • ($82, 500 -38, 700) $43, 800 of $9636 + income is taxed at 22% • Remaining income of $7. 500 $1800 ($90, 000 -82, 500) is taxed at 24% 10% Bracket $0 – $9, 525 12% Bracket $9, 526 – $38, 700 22% Bracket $38, 701 – $82, 500 $82, 501 – $157, 500 $157, 501 – 32% Bracket $200, 000 $200, 001 – 35% Bracket $500, 000 24% Bracket 37% Bracket $500, 001+ $952. 5 + $3, 501 + Gross Income = $90, 000 Taxes = $15, 889. 5 Tax Rate = 17. 6% (15, 889. 5/$90, 000)

SINGLE TAX EXAMPLE FOR $60, 000 SALARY Tax Bracket 10% Bracket 15% Bracket 28% Bracket 33% Bracket 35% Bracket 39. 6% Bracket Single $0 – $9, 075 First $9, 075 $9, 076 – of income is $36, 900 taxed at $36, 901 – 10% $89, 350 $89, 351 – $186, 350 $907. 50 + $186, 351 – $405, 100 $405, 101 – $406, 750 $406, 751+ Income between $9, 076 & $36, 900 of income is taxed at 15% ($36, 900 -$9, 076)*. 15 $4, 173. 75 + Remaining $23, 100 (60, 00036, 900) of income is taxed at 25% $5, 775 = $10, 856. 25 Gross Income = $60, 000 Taxes = $10, 856. 25 OVER ALL Tax Rate = 18% (10, 856/60, 000)

Do now: Reviewing Income Tax Tables Tax Bracket Single 10% Bracket $0 – $9, 525 12% Bracket $9, 526 – $38, 700 22% Bracket $38, 701 – $82, 500 24% Bracket $82, 501 – $157, 500 32% Bracket $157, 501 – $200, 000 35% Bracket $200, 001 – $500, 000 37% Bracket $500, 001+ Married Filing Jointly $0 – $19, 050 $19, 051 – $77, 400 $77, 401 – $165, 000 $165, 001 – $315, 000 $315, 001 – $400, 000 $400, 001 – $600, 000+ 1. Calculate the tax for a SINGLE person who makes TAX = $550 $5, 500 2. Calculate the tax for a MARRIED person who makes $148, 500 TAX =1905+7, 002+15, 642: $24, 549

• Louise Main’s annual salary as a police officer is $34, 500. She receives her pay semimonthly, or twice a month. Her exemptions total $2, 000. Use the figure to determine how much her employer deducts for state income tax from each of her semimonthly paychecks? • Step 1: Find the taxable wages. o Annual Gross Pay – Exemptions o $34, 500 - $2, 000= $32, 500 • Step 2: Find the annual tax withheld o o $1, 000 x 1. 5% = $15 $2, 000 x 3% = $60 $2, 000 x 4. 5% = $90 27, 500 x 5% = $1, 375 o 15+60+90+1, 375= $1, 540 Taxable Wages Tax Rate First 1, 000 1. 5% Next 2, 000 3% Next 2, 000 4. 5% Over 5, 000 5% • Step 3: Find the tax withheld per pay period. Exemptions Single $2, 000 • Married 4, 000 Each Dependent 2, 000 Annual Tax withheld/# of pay period per year 1, 540 / 24= $64. 17

Concept Check • Page 136 o 1&2

Concept Check • Eddie black is single ($2, 000) and receives his pay biweekly pay. His annual salary as a tailor for Whyte and Broom is $21, 350. • • $21, 350 - $2, 000 = $19, 350 $1, 000 x 1. 5%= $15 $2, 000 x 3%= $60 $2, 000 x 4. 5%= $90 $14, 350 x 5% = $717. 50 15+60+90+717. 50= $882. 50 / 26= $33. 94

Classwork • Textbook o Pg 136 *Show Work for Full Credit o #’s 1 -6 o Worksheet

Do Now $52, 400 -$5, 000= $47, 400 • Leslie Chan annual gross pay as a dance company treasurer is $54, 400. He is single and receives his pay on a monthly basis. How much does the dance company withhold from his wages monthly for state tax? • • $54, 400 -$2, 000= $52, 400 $1, 000 x 1. 5%= $15 $2, 000 x 3%= $60 $2, 000 x 4. 5%= $90 $47, 400 x 5%= $2, 370 15+60+90+2, 370= $2, 535/12= $211. 25 Taxable Wages Tax Rate First 1, 000 1. 5% Next 2, 000 3% Next 2, 000 4. 5% Over 5, 000 5% Exemptions Single $2, 000 Married 4, 000 Each Dependent 2, 000

Review • Anita Munoz, a medical transcriber, earns an annual gross pay of $45, 520. She is married with 2 dependents. How much does her employer withhold from her biweekly pay check? Taxable Wages Tax Rate First 1, 000 1. 5% Next 2, 000 3% Next 2, 000 4. 5% Over 5, 000 5% Exemptions Single $2, 000 Married 4, 000 Each Dependent 2, 000

Classwork • Workbook-Worksheet • #’s 1 -7

Do Now • Martin Tabor’s gross pay for the year is $28, 500. The state income tax rate is 3. 5 percent. If Tabor takes a single exemption for himself ($2, 000) how much is withheld from his yearly earnings for state income tax? • $28, 500 - $2, 000 = $26, 500 • $27, 000 X 3. 5% =$927. 50

Classwork • Finish • Workbook page 22 – 23 • #’s 1 -7 • Workbook page 20 -21 • #’s 1 - 8 • Worksheet Handout

Do Now • Ricky Delgado earns $43, 500 annually as an automobile mechanic. He is married but has no dependents ($4, 000 Exemptions). The state tax rate is 4. 6%. What is the annual state income tax? • $43, 500 - $4, 000 = $39, 500 • $39, 500 x 4. 6% = $1, 817

Social Security & Medicare Taxes • The federal insurance contributions act (FICA) requires employers to deduct 7. 65% of your income for Social Security and Medicare taxes.

Social Security • Social Security 6. 2% is deducted on the first $97, 500 of income. • Social Security- A federal government program to pay for retirement & disability benefits.

Medicare • Medicare is 1. 45% on all your earnings. • Medicare- A federal government program to provide medical insurance for those over 65.

Formula • Tax Withheld = Gross Pay x Tax Rate

Social Security & Medicare • Riley Henderson’s gross biweekly pay as a manufacturing parts inspector is $728. His earnings to date for the year total $26, 208. What amount does his employer deduct from his pay this pay period for Social Security taxes? What are his Medicare taxes? What is the total deduction? 1. Find the Social Security tax amount withheld. 1. GROSSPAY X TAX RATE 1. 728 x 6. 2% = $45. 14 2. Find the Medicare tax withheld. 1. GROSSPAY X TAX RATE 2. 728 x 1. 45% = $10. 56 3. Find the total deduction. 1. SOCIAL SECURITY TAX + MEDICARE TAX 2. 45. 14 +10. 56 = $55. 70

Concept Check • Page 137 #’s 1 & 2

CLASSWORK • TEXTBOOK PAGE 137 -138 • #’S 1 -10 • Worksheet Handout #’s 1 -10

Do Now • Nicole a cashier, has and annual gross pay of $18, 200. Her exemptions total $1, 500. The state tax on the first $3, 000 is 1. 5% and on amounts over $3, 000 is 3%. What is the graduated state tax withheld? • • • $18, 200 – $1, 500 = $16, 700 $3000 x 1. 5% = $45 $13, 700 x 3% = $411 $45 + $411= $456 $16, 700 - $3000= $13, 700

REVIEW • Shelly Kelso’s gross pay this month is $6, 223. Her earnings to date for this year are $23, 631. How Much does her employer deduct from her paycheck this month for Social Security and Medicare? • $6, 223 x 6. 2% = $385. 83 • $6, 223 x 1. 45%= $90. 23 • 385. 83+90. 23= $476. 06

Review • Oliver earns $45, 440 a year as a basketball coach and receives his pay on a monthly basis. How much does the school deduct for Social Security & Medicare? What is the total deduction? • 45, 440 / 12 = $3, 786. 67 • $3, 786. 67 x 6. 2%= $234. 77 • $3, 786. 67 x 1. 45%= $54. 91 • 234. 77+54. 91= $289. 68

Classwork • Textbook page 138 #’s 1 - 10 • Workbook page 24 #’s 1 -4 • Worksheet Handout • #’s 1 -6

Do Now (Social Security and Medicare) • Oliver Gelfand earns $45, 440 a year as a basketball coach and receives his pay on semimonthly basis. How much does the school deduct per pay period for (a) Social Security tax and (b) Medicare tax? (c) What is the total monthly deduction?

Graduated State Income Tax Bill is an electrician. His annual gross salary is $55, 000. He is married with one dependent, allowing him $2, 650 in yearly personal exemptions. If his state income tax is based on the following graduated rate, how much is withheld from his monthly paycheck? State Tax Rate Annual Income 3% First $15, 000 4% Next $15, 000 5% Over $30, 000

Review ANSWER! $55, 000 - $2, 650= $52, 350 $15, 000 x 3% = $450. 00 $15, 000 x 4% = $600. 00 $22, 350 x 5% = $1, 117. 50 $450. 00 + $600. 00 + $1, 117. 50 = $2, 167. 50 / 12 = $180. 63

State Tax Review Joey earns $450. 00 per week. He is married with one child. His personal exceptions are $3, 700. The state tax rate is 3. 0% of taxable income. What amount is withheld from Joey weekly pay for state income tax?

Review ANSWER 450. 00 x 52 = $23, 400 - $3, 700 = $19, 700 x 3% = $591. 00 / 52 = $11. 37

Do Now Social Security • Roland Purcell a technical writer, has a gross weekly income of $721. 15. His earnings to date for this year are $24, 000. How much is deducted this month for social security? How much for Medicare? • $721. 15 x 6. 2%= $44. 71 • $721. 15 x 1. 45%= $10. 46 • 44. 71+10. 46= $55. 17

Group Health Insurance • Group insurance: Health Insurance offered by many businesses to employees, paid in part by business and in part by the employee. • Employee’s Share= Annual Amount x Employee’s Percent • Deduction per Pay Period= Total Annual Amount Paid by Employee / Number of Pay Periods per Year

Group Health Insurance • Nadine Mc. CLure is a carpenter for Ozark Construction Company. She has family medical coverage through Ozark’s group medical plan. The annual cost of Nadine’s family membership is $9, 800. The company pays 75% of the cost. How much does she have deducted from her bi-weekly paycheck for medical insurance? • Step 1: Find the percentage the employee pays. o 100% - percent company pays o 100% - 75%= 25% • Step 2: Find the total amount the employee pays. o Annual Amount x Employee’s Percent o 9, 800 x 25% = $2, 450 • Step 3: Find the deduction per pay period o Deduction per pay period = Total Annual Amount Paid by Employee/Number of Pay Periods per Year o $2, 450 / 26= $94. 23

Concept Check 1. Annual Cost of insurance: $6, 570; employer pays 70%; 12 pay periods 1. 100% - 70%= 30% 2. 6570 x 30%=$1, 971 3. $1, 971 / 12= $164. 25 1. Annual cost of insurance: $12, 000; employer pays 80%; 52 pay periods 1. 100% - 80%= 20% 2. $12, 000 x 20%= $2, 400 3. 2, 400/52= $46. 15

Classwork • Page 140 -141 • #’s 5 -10 • Please show work and circle final answers.

Do Now • Shelly Kugo is paid monthly. Her gross pay this month is $6, 223. Her earnings to date for this year are $23, 631. How much is deducted from her paycheck this month for Social Security? Medicare? • $6, 223 x 6. 2%= $385. 83 • $6, 223 x 1. 45%= $90. 23

Review Health Insurance • Marge is a pilot. Her annual group insurance cost $4, 400 and her company pays 80% of the cost. How much of the cost does marge pay monthly? • $100%-80%= 20% • $4, 400 x 20%= $880 • $880/12= $73. 33

Classwork • Workbook Page 25 #’s 1 -4 • Worksheet Handout • Make-up Work

Do Now Review #4 • Shashi Rimoko earns $620 per week as a chef. He has group medical and dental insurance. Medical coverage costs $9, 560 a year and dental coverage cost $172 a year. The restaurant pays 80% of the medical and 65% of the dental insurance. How much is deducted each week for insurance coverage? • 100% - 80%= 20% • $9, 560 x 20%= $1, 912 • $1, 912/52= $36. 77 • • 100% - 65%= 35% 172 x 35%= $60. 20/52= $1. 16 36. 77+1. 16= • 37. 93 65

Statement of Earnings • Net pay - the amount of money you have left after your employer subtracts all tax withholdings and personal deductions from your gross pay. • You may have additional deductions taken from your gross pay for union dues, savings plans, and retirement account contributions. 66

Statement of Earnings 67

Statement of Earnings 68

Statement of Earnings • Net Pay = Gross Pay – Deductions • Step 1: Find the total deductions. Add up all the following Federal W/H (FIT) + State Income tax + SS (FICA) + Medicare + Medical Insurance • Step 2: Find the net pay. Gross Pay – Total Deductions

Example 1 Alysha Moore’s gross weekly salary is $600. She is married and claims 3 allowances. The Social Security tax is 6. 2% of the first $97, 500. On a paycheck stub, it shows up as Federal Insurance Corporation Act (FICA). The Medicare tax is 1. 45% of gross pay. The state tax is 1. 5% of gross pay. Each week she pays $28. 40 for medical insurance and $5. 00 for charity. Is Moore’s earning statement correct? Dept Employee Check Number Gross Pay Net Pay 15 Alaysha Moore 1501 $600 $485. 70 Tax Deductions FIT FICA 26 37. 20 Other Deductions Medicare State 8. 70 9. 00 Local Medical Union Others - 28. 40 - 5. 00

Do Now (Concept Check) • Ron King is a single airline ticket agent who claims 1 allowance. His gross weekly salary is $320. 00. Each week he has deducted federal, social security and Medicare taxes; $26. 20 for medical insurance; 1. 5% state tax; and 25. 00 for the credit union. Find the total deductions and net pay. 71

Concept Check #2 • Briana Ralph, a pastry chef, is married and claims 2 allowances. Her gross weekly salary is $450. 00. Each week she has the company deduct Federal, Social Security and Medicare taxes; $21. 20 for medical insurance; and $5. 00 for savings. She pays no state taxes. What is her net pay? 72

Classwork • Textbook Pg. 144 • #’s 2, 4 -8 • Please show work 73

Do Now • Work on the quiz. ü Show work and circle final answers. Please! ü You may work with a partner. • Remaining time complete textbook page 143 -144 #’s 2, 4 & 5.

Do Now • Jeff Falls, a heating system salesman, is single with 3 dependents. He earns $57, 900 annually, and his state’s tax rate is 3%. What are his exemptions and annual state income tax? Exemptions Single $2, 000 Married 4, 000 Each Dependent 2, 000

Classwork • Textbook Pg. 144 • #’s 4 -8 • Please show work for full credit • *Workbook Pg. 26 1 -3 77

Do Now (Collection Today) • Jess is a pilot. Her annual group insurance cost $3, 800 and her company pays 60% of the cost. How much of the cost does marge pay monthly? • 100% - 60%= 40% • $3, 800 x 40% = $1, 520 • $1520 / 12= $126. 67

Graduated State Income Tax • Eddie black is single ($2, 000) and receives his pay biweekly pay. His annual salary as a tailor for Whyte and Broom is $21, 350. • • $21, 350 - $2, 000 = $19, 350 $1, 000 x 1. 5%= $15 $2, 000 x 3%= $60 $2, 000 x 4. 5%= $90 $14, 350 x 5% = $717. 50 15+60+90+717. 50= $882. 50 / 26= $33. 94

State Tax • Tony Raymond’s gross pay as a landscape designer is $44, 750 a year. That state income tax rate is 3% of taxable wages. He takes an exemption for himself and 1 exemption for his child. How much does Tony’s employer withhold yearly from his gross earnings for state income tax? 1. Find the taxable wages. Exemptions o Annual Gross Pay – Exemptions A. $44, 750 -($2, 000+$2, 000)=$40, 750 2. Find the annual tax withheld. o Taxable Wages x Tax Rate o $40, 750 x 3%= $1, 222. 50 Single $2, 000 Married $4, 000 Each Dependent $2, 000

Statement of Earnings Alysha Moore’s gross weekly salary is $600. She is married and claims 3 allowances. The Social Security tax is 6. 2% of the first $97, 500. On a paycheck stub, it shows up as Federal Insurance Corporation Act (FICA). The Medicare tax is 1. 45% of gross pay. The state tax is 1. 5% of gross pay. Each week she pays $28. 40 for medical insurance and $5. 00 for charity. Is Moore’s earning statement correct? Dept Employee Check Number Gross Pay Net Pay 15 Alaysha Moore 1501 $600 $485. 70 Tax Deductions FIT FICA 26 37. 20 Other Deductions Medicare State 8. 70 9. 00 Local Medical Union Others - 28. 40 - 5. 00

Review Problems • Page 151 o #’s 1 -4, 6, 8 -10 • Page 150 o #28 • Page 148 o #19

Classwork • Workbook Page 22 -23 #’s 1 -7 • Show work for full credit