Chapter 2 Understanding Your Paycheck
64
Example 2-1B
See It
Determine the amount of Social Security tax that will be withheld from
Chloe’s weekly paycheck. Recall she earns $644.80 per week.
Strategy
Use the formula:
Social Security tax = gross pay × tax rate
Solution
Step 1: Identify Chloe’s gross pay and the Social Security tax rate.
gross pay = $644.80 per week
Social Security tax rate = 6.2%
Step 2: Convert the tax rate from a percentage to a decimal by moving the
decimal two places to the left.
6.2% → 0.062
Step 3: Multiply Chloe’s gross pay by the Social Security tax rate. Round to the
nearest cent ($0.01) if necessary.
Social Security tax = gross pay × tax rate
Social Security tax = $644.80 × 0.062
Social Security tax = $39.98
Check It
Maria is a teller at a bank. She is paid biweekly, and her gross pay for each
paycheck is $1,006.15. Determine the amount of Social Security tax that will be
withheld from Maria’s paycheck.
Medicare taxes are withheld in addition to Social Security taxes. The
employee pays 1.45% of total earnings in Medicare taxes. However, unlike Social
Security taxes, there is no cap on earnings subject to Medicare taxes. All of an
employee’s earnings, regardless of the amount, are subject to Medicare taxes.
Medicare tax = gross pay × tax rate
Like Social Security taxes, the employer pays a matching amount in Medicare
tax on the employee’s earnings.