Determining Payroll Tax Withholding Lesson 12 2 Payroll

Payroll Taxes n Payroll Taxes: taxes based on the payroll of a business n

Payroll Taxes n Federal and state governments may charge a business a penalty for

Employee’s Withholding Allowance Certificate 3 2 4 5 • Completed when hired • Purpose:

Employee’s Income Tax Withholding- Married Persons 1 2 3 1. Select the appropriate table

Medicare and Social Security Tax n Federal Insurance Contributions Act (FICA) l l l

Medicare and Social Security Tax n Social Security Tax: Federal tax paid for old-age,

Social Security and Medicare Tax Social Security tax rate and base- 6. 2% of

Questions n Where does an employer get the information used to determine the amount

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Determining Payroll Tax Withholding Lesson 12 -2

Payroll Taxes n Payroll Taxes: taxes based on the payroll of a business n A business is required by law to withhold certain payroll taxes from employee salaries Federal Income Tax l FICA – Social Security & Medicare l State Income tax l Local Income tax l

Payroll Taxes n Federal and state governments may charge a business a penalty for failure to pay correct payroll taxes when they are due n Payroll taxes withheld represent a liability for the employer until paid (ex. Social Security Tax Payable)

Employee’s Withholding Allowance Certificate 3 2 4 5 • Completed when hired • Purpose: to inform the employer the number of marital status and withholding allowances to calculate federal income tax • Withholding allowance = exemptions (examples: yourself, children, spouses)

Employee’s Income Tax Withholding- Married Persons 1 2 3 1. Select the appropriate table (single or married). 2. Locate the employee’s total earnings. 3. Intersection of wages and number of allowances column.

Medicare and Social Security Tax n Federal Insurance Contributions Act (FICA) l l l Provides for a federal system of old-age, survivors, disability, and hospital insurance Paid by both employees and employer Employees are required to withhold and deposit the employers part of the taxes and pay a matching amount of these taxes

Medicare and Social Security Tax n Social Security Tax: Federal tax paid for old-age, survivors, and disability insurance 6. 2% l up to $118, 500 for 2016. l n Medicare Tax: Federal tax paid for hospital insurance l 1. 45%

Social Security and Medicare Tax Social Security tax rate and base- 6. 2% of earnings up to a max of $87, 000 in each calendar year n Medicare tax rate- 1. 45% n

Questions n Where does an employer get the information used to determine the amount of federal income tax to withhold from employees’ earnings? n Employee federal income tax withholdings are based on what two factors? n Who pays social security and Medicare taxes?