Section 2.3 Analyzing Pay
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Step 3: Determine Ted’s weekly gross pay, both before and after the raise.
Multiply the hourly wage by the number of hours.
before raise:
gross pay = hourly wage × number of hours
gross pay = $15.72 per hour × 40 hours
gross pay = $628.80
after raise:
gross pay = new hourly wage × number of hours
gross pay = $16.51 per hour × 40 hours
gross pay = $660.40
Step 4: Determine the amount of federal income tax withholdings from Ted’s
weekly paycheck. Use the tax tables found in Figures 2-2 and 2-3. Ted is single
and claims one withholding allowance.
before raise:
$628.80 is between $620 and $630
federal withholdings = $69
after raise:
$660.40 is between $660 and $670
federal withholdings = $75
Step 5: Determine the amount of Social Security tax that Ted will have withheld
from his paycheck.
Multiply his gross pay by the Social Security tax rate of 6.2%, or 0.062. Round to
the nearest cent ($0.01).
before raise:
Social Security tax = gross pay × tax rate
Social Security tax = $628.80 × 0.062
Social Security tax = $38.99
after raise:
Social Security tax = gross pay × tax rate
Social Security tax = $660.40 × 0.062
Social Security tax = $40.94
Step 6: Determine the amount of Medicare tax that Ted will have withheld from
his paycheck. Multiply his gross pay by the Medicare tax rate of 1.45%. Round to
the nearest cent ($0.01).
before raise:
Medicare tax = gross pay × tax rate
Medicare tax = $628.80 × 0.0145