Chapter 2 Understanding Your Paycheck
84
Medicare tax = $9.12
after raise:
Medicare tax = gross pay × tax rate
Medicare tax = $660.40 × 0.0145
Medicare tax = $9.58
Step 7: Determine the amount of state income tax that Ted will have withheld
from his paycheck. Multiply his gross pay by the state income tax rate of 4.63%.
Round to the nearest cent ($0.01).
before raise:
state income tax = gross pay × tax rate
state income tax = $628.80 × 0.0463
state income tax = $29.11
after raise:
state income tax = gross pay × tax rate
state income tax = $660.40 × 0.0463
state income tax = $30.58
Step 8: Determine Ted’s net pay before his raise.
net pay = gross pay – (federal tax withholdings + Social Security tax + Medicare
tax + state income tax withholdings)
net pay = $628.80 – ($69 + $38.99 + $9.12 + $29.11)
net pay = $628.80 – $146.22
net pay = $482.58
Step 9: Determine Ted’s net pay after his raise.
net pay = gross pay – (federal tax withholdings + Social Security tax + Medicare
tax + state income tax withholdings)
net pay = $660.40 – ($75 + $40.94 + $9.58 + $30.58)
net pay = $660.40 – $156.10
net pay = $504.30
Step 10: Determine the diff erence in Ted’s net pay. Subtract Ted’s net pay before
his raise from Ted’s net pay after his raise.
diff erence in net pay = net pay after raise – net pay before raise
diff erence in net pay = $504.30 – $482.58
diff erence in net pay = $21.72
Check It
Lorraine is a historian for the history museum. She earns $26.55 per hour,
is paid weekly, and works 40 hours per week. She is married and claims two
withholding allowances. Lorraine lives in a state with a fl at-rate income tax of
3.5%. After her annual job performance review, she learned that she will receive a
4.5% raise. Determine the change in Lorraine’s net pay per paycheck.
fyi
To determine the
percentage of a raise,
divide the diff erence in
net pay by the original
amount of net pay
prior to the raise. In
Ted’s case:
$21.72
≈ 4.5%
$482.58
This is the actual
percentage increase
in Ted’s net pay, as
opposed to the 5%
increase in his gross
pay, once withholdings
and taxes are taken
into account.