Section 2.1 Calculating Taxes
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Example 2-1C
See It
For Chloe’s weekly earnings of $644.80, determine the amount of Medicare
tax that will be withheld from her weekly paycheck.
Strategy
Use the formula:
Medicare tax = gross pay × tax rate
Solution
Step 1: Identify Chloe’s gross pay and the Medicare tax rate.
gross pay = $644.80 per week
Medicare tax rate = 1.45%
Step 2: Convert the tax rate from a percentage to a decimal by moving the
decimal two places to the left.
1.45% → 0.0145
Step 3: Multiply Chloe’s gross pay by the Medicare tax rate. Round to the nearest
cent ($0.01) if necessary.
Medicare tax = gross pay × tax rate
Medicare tax = $644.80 × 0.0145
Medicare tax = $9.35
Check It
Daniel is an aviation technician earning $2,168.75 semimonthly. Determine
the amount of Medicare tax that will be withheld from each of his paychecks.
State and City Income Taxes
Most states, and even some cities, impose their own income taxes. Of
the states that have an income tax, most use a progressive tax. Recall that a
progressive tax means the rate rises as income level increases.
Currently, seven states have a fl at-rate tax, or fl at tax, meaning all
employees pay the same percentage regardless of income level. Seven other
states have no personal state income tax.
Calculating a fl at tax is very straightforward. The taxable income is simply
multiplied by the fl at tax rate to get the amount of tax due. Remember from
earlier in this chapter that taxable income is the portion of your income that is
fyi
Employees who commute
to a state or city that
has established income
taxes typically must pay
the taxes on the money
earned in that state or
city, regardless of where
the employee lives.