Chapter 2 Understanding Your Paycheck
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subject to taxation. States usually base their income taxes on the taxable income
calculated for federal taxes. States with a fl at income tax generally tax income at
rates between 3% and 5%.
state income tax = gross pay × tax rate
Example 2-1D
See It
Chloe lives in a state that has a 4% fl at-rate tax. Based on her weekly
earnings of $644.80, determine the amount of state income tax that will be
withheld from her weekly paycheck.
Strategy
Use the formula:
state income tax = gross pay × tax rate
Solution
Step 1: Identify Chloe’s gross pay and the state income tax rate.
gross pay = $644.80 per week
state income tax rate = 4%
Step 2: Convert the tax rate from a percentage to a decimal by moving the
decimal two places to the left.
4% → 0.04
Step 3: Multiply Chloe’s gross pay by the state income tax rate. Round to the
nearest cent ($0.01) if necessary.
state income tax = gross pay × tax rate
state income tax = $644.80 × 0.04
state income tax = $25.79
Check It
Desmond lives in a state that has a fl at-rate state income tax of 4.35%. He
works as a train engineer, earning $794.40 per week. What is the amount of state
income tax that will be withheld from his paycheck?
A progressive state income tax is often based on a table similar to the one
shown in Figure 2-4. As each income range increases, the percentage of tax also
increases.