Section 2.1 Calculating Taxes
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Example 2-1F
See It
You remember that Chloe earns $644.80 per week. She is single and claims
two withholding allowances. Chloe also lives in a state with a 4% fl at-rate state
income tax. Use this information, along with the Social Security tax rate of 6.2%
and Medicare tax rate of 1.45%, to calculate Chloe’s net pay in one paycheck.
Strategy
Use the formula:
net pay = gross pay – (federal tax withholdings + Social Security tax +
Medicare tax + state income tax withholdings)
Solution
Step 1: Identify Chloe’s gross pay and her taxes and withholdings. Use your
previous work to save time.
gross pay = $644.80 per week
federal tax withholdings = $61
Social Security tax = $39.98
Medicare tax = $9.35
state income tax = $25.79
Step 2: Determine the total amount of Chloe’s taxes and withholdings.
total withholdings = federal tax withholdings + Social Security tax + Medicare
tax + state income tax withholdings
total withholdings = $61 + $39.98 + $9.35 + $25.79
total withholdings = $136.12
Step 3: Determine Chloe’s net pay by subtracting her total withholdings from
her gross pay.
net pay = gross pay – total withholdings
net pay = $644.80 – $136.12
net pay = $508.68
Check It
Brandon works as an animal trainer who trains service dogs for people with
disabilities. Recall that Brandon earns $625.27 per week. He is single and claims
one withholding allowance. His state has a fl at-rate state income tax of 4.63%.
Calculate Brandon’s net pay. Use your previous work to save time.