Payroll deductions

• Economie

What is a tax?

Video

Chapter 12

Section 2: Payroll deductions

Pages  318-322

Objectives

Describe deductions and witholding allowances.

Analyze the form W-4 and its importance

Discuss the calculation of federal income tax

Vocabulary

Deductions

Withholding Allowances

What is an amount that reduces income tax to be withheld?

1. Tariffs
2. Deductions
3. Withholding allowances
4. Tax

What is an amount deducted from gross earnings?

1. Deductions
2. Bonus
3. Tax
4. Withholding allowances

Vocabulary

An amount subtracted from gross earnings is a deduction. Deductions include those required by law and those an

employee wishes to have withheld from earnings.

A withholding allowance reduces the amount of income tax to be withheld. The more allowances a taxpayer claims, the lower the amount of income tax withheld from earnings

Form W-4

The federal income tax amount withheld depends on three

factors: (1) the employee’s marital status, (2) the number of allowances the employee claims, and (3) the employee’s gross earnings.

Each employee fills out a Form W-4 when starting a job and files a revised
Form W-4 if the marital status or number of allowances changes. Employers  keep a current Form W-4 on file for each employee

What are the factors on which the Form W-4 depends?

Why are some employees exempt from tax withholdings

Federal Income tax

The employer acts as a collection agent and sends the

money withheld to the federal government.

The amount of income tax withheld is based on the estimated income tax the employee will actually owe. The exact income tax amount is determined when the employee prepares an income tax return

Emily Kardos
is single and claims no allowances. For the week ending June 30, she earned
$229.40.What is her Federal income tax ?

Answers

$26

Percentage method

Allowance Amount = Number of Allowances × $63.46

Taxable Wage = Gross Pay − Allowance Amount

Amount withheld for FIT = Use the Taxable Wage and the table below to compute.

Lance Hart’s gross pay for this week is $393.23. He is a carpenter’s
apprentice, is single, and claims 2 allowances. Using the percentage
method of withholding, what amount will Lance’s employer withhold
from his pay for federal income tax?

Answer

Step 1: Find the allowance amount.

Allowance Amount = Number of Allowances × $63.46

$126.92 = 2 × $63.46

Step 2: Find the taxable wage.

Taxable Wage = Gross Pay − Allowance Amount

$266.31 = $393.23 − $126.92

Step 3: Find the amount withheld for FIT using the table.

a. Find the taxable wage in the row over $195 but not over $645.00.

b. Find the amount of income tax withheld by:

Tax Withheld for FIT = $14.40 plus 15% of the excess over $195.00

= $14.40 + [0.15 × ($266.31 − $195.00)]

= $14.40 + (0.15 × $71.31)

$25.10 = $14.40 + $10.70

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