Federal Income Tax Section 2 1 Federal taxes

Federal Income Tax Section 2. 1

Federal taxes are used to keep government agencies and services running. The federal income tax is the amount of money one has to pay the government based on the situation.

Federal income tax will vary depending on a few things… Income Marital status Withholding allowances

Suppose Joe’s gross pay is $523. 45. His is married so he claims two allowances. How much will be withheld from his pay for FIT? Over to 2 Allowances Down to $520 - $530 Amount Withheld: $25. 00

Suppose Joe claimed three allowances, and his employer withheld $75. How much does Joe make a week? Over to 3 Allowances Amount Withheld: $75. 00 Income Amount: $930. 00 to $940

State Income Tax Section 2. 2

Along with the federal income tax there also state income taxes that are required to be paid. These can be withheld from your income as well.

Taxable wages depend on personal exemptions or “withholding allowances”

Figuring out taxable wages… Taxable Wages=Annual Gross Pay-Personal Exemptions

Figuring annual tax withheld… Annual Tax Withheld=Taxable Wages*Tax Rate

Frank’s gross pay is $60, 000 a year. The state income tax rate is 5%. He takes a married exemption. How much is withheld from his earnings for state income tax? Tax. Wages = Ann. Pay - Exemptions Tax. Wages = 60, 000 – 4, 000 Tax. Wages = $56, 000 Tax Withheld = Tax. Wages x Tax Rate Tax Withheld = 56, 000 x 0. 05 Tax Withheld = $2, 800. 00

Sherman’s gross pay is $39, 250 a year. The state income tax rate is 4%. He is single with two dependents. How much is withheld from his earnings for state income tax? Tax. Wages = Ann. Pay - Exemptions Tax. Wages = 39, 250 – 6, 000 Tax. Wages = $33, 250 Tax Withheld = Tax. Wages x Tax Rate Tax Withheld = 33, 250 x 0. 04 Tax Withheld = $1, 330. 00

Lesson 04: Federal and State Income Tax � Questions? � Summarize � Homework your notes ◦ Google Classroom