Tax Unit: Module 1 Consumer Math Class East Jackson High School 2015.
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Transcript of Tax Unit: Module 1 Consumer Math Class East Jackson High School 2015.
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Tax Unit: Module 1
Consumer Math Class
East Jackson High School
2015
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Module 1: Payroll Taxes and Federal Income Tax Withholding
Introduction Payroll taxes include the
Social Security tax and the Medicare tax.
The Medicare tax is used to provide medical benefits for certain individuals when they reach age 65.
Federal income taxes are used to provide for national programs.
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Do you need to file?
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Social Security Tax
The Social Security tax is also called the FICA (Federal Insurance Contributions Act) tax.
Social Security taxes provide the following: Retirement benefits Benefits for the dependents of retired workers Benefits for the disabled and their dependents
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Medicare Tax
Provides medical benefits for certain individuals when they reach 65.
Individuals eligible: workers retired workers spouses of workers and retired workers
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Federal income taxes finance:
National defense, veterans, and foreign affairs
Social programs Physical, human, and community
development Law enforcement Interest on the national debt
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Gross Pay and Net Pay
Gross pay = the total amount an employee earns Net pay (Take-home pay) = amount the employee
receives after money has been withheld for: Social Security taxes Medicare taxes Income tax (Federal, State, and/or City) Other withholdings
Employers send the withheld taxes to the taxing authorities.
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Payroll Taxes 2014 Payroll Tax Rates
Social Security tax rate 6.20% Medicare tax rate 1.45% Total payroll taxes 7.65%
There is a maximum annual amount of Social Security tax withheld per employee. Social Security taxes are not withheld on amounts over the earnings limit. For 2014, the earnings limit was $117,000, and the maximum Social Security tax was $7,254 ($117,000 x 6.2%). There is no limit on the amount of wages subject to Medicare tax.
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Form W-4
Employees complete Form W-4, Employee’s Withholding Allowance Certificate.
Employers use Form W-4 to determine how much federal income tax to withhold.
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Withholdings depend on:
The employee’s marital status The number of withholding allowances
claimed by the employee. The more allowances, the less $ withheld.
Any additional amount the employee wants to withhold
Any exemptions from withholding that the employee claims.
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Example W-4
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ExampleAngela Viviano earns $2,000 a month as a
physical therapist’s assistant. Angela’s net pay is calculated as follows:
Gross Pay $2,000
Social Security (6.2%) -$124
Medicare (1.45%) -$29
Income Tax (per W-4) -$237
Retirement -$50
Net Pay $1,576Her employer sends $390 ($124 + $29 + $237) to
the federal government and $50 to the retirement fund.
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Quick Check!____1. Which tax provides for medical benefits?
a. FICA taxb. Federal income taxc. Social Security taxd. Medicare tax
____2. How much income tax do employers withhold from employee pay?a. 6.2% of gross payb. 1.45% of gross payc. 7.65% of gross payd. Employers use the information on Form W-4
to compute income tax withholding.
____3. Net paya. is more than gross pay.b. is also known as take-home pay.c. is gross pay minus 7.65%d. depends on how much the employee wants to pay in Social Security
taxes.
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1. Who completed Form W-4? ___________________2. Is the taxpayer married or single?
a. Marriedb. Singlec. Divorced d. Widowed
3. How many allowances does the taxpayer claim? _____4. How much additional tax does the taxpayer want to be withheld? _________
Ahmed Khanb
350
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Review Questions
____1. Employees decide when to pay their payroll taxes.a. Trueb. False
____2. Federal income taxes are used to pay the interest on the national debt.
a. Trueb. False
____3. In 2014, the Medicare tax rate was 1.45% of gross pay.a. Trueb. False
____4. Employees use Form W-4 to prove that they are eligible to work in the United States.
a. Trueb. False
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Simulation for Module 1Learn how to complete a Form W-4
Your name is Lawrence Red Owl.
You have just recently graduated from college with a marketing degree.
On the 1st of next month you will start your new job as manager of a clothing store in a mall.
You will get a weekly salary plus a bonus based on the store’s sales.
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Use the following information to fill out the Form W-4 given in your packet.
Marital Status: Single Children: None U.S. citizen: Yes Dependents other than above: None Social Security Number: 512-00-2213 Address:
5022 Oak Tree Dr. Anytown, US 00001
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Congratulations!
You’ve just finished Module 1!
All information came from the Internal Revenue Service Understanding Taxes
Program
http://www.irs.gov/app/understandingTaxes