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Terms
• deduction
• progressive tax
• withholding
allowance
• dependent
• taxable income
• Social Security
tax
• Medicare
• FICA
• fl at-rate tax
• net pay
Section 2.1 Calculating Taxes
Objectives
• Determine federal withholding using a tax table.
• Defi ne and calculate FICA taxes.
• Calculate state income taxes.
• Determine net pay.
Build Your Math Skills
Review these math skills to prepare for the lesson that follows.
1. Change percentages to decimals by moving the decimal two places to
the left. Example: 12% → 0.12
A. 15% → B. 5% →
C. 6.2% → D. 7.5% →
2. Multiply decimals. Round your answers to the nearest cent ($0.01).
Example: $15.25 × 1.5 = $22.875 ≈ $22.88
A. $125 × 0.15 = B. $48,000 × 0.062 =
C. $150 × 0.075 = D. $245 × 0.04 =
3. Add and subtract decimals. Example: $175.85 + $85.55 = $261.40
A. $495.63 + $70.05 = B. $960 + $63.42 =
C. $547.58 – $32.10 = D. $940.67 − $67.85 − $53.25 =
Federal Withholding
Anyone who has ever received a paycheck knows that the amount of the
actual check is less than the total earnings, or gross pay. A deduction is any
amount that is subtracted from gross pay. When money is taken out of your
check, it is said to be withheld from your pay. The most common deduction from
your check is for taxes. First look at withholding for federal taxes, which is known
as federal withholding.
In the US, employers are required to withhold money from employee pay
and send that money to the government. Money withheld from employees for
federal taxes is not actually the tax the employee owes. The withholding is an
estimate
of the taxes that the employee will owe for the year.
The amount of money that is withheld from your pay is based on a variety of
factors, including:
• the amount of money you earn;
• your marital status; and
• the number of dependents.
fyi
When you fi le your federal
tax return, you determine
if the estimated taxes
withheld from your pay
cover the taxes you owe.
You might be required
to pay more, or, if you
overpaid, may receive a
refund.