Business Math

2.1 Deductions from the Gross Pay

Goals

• Find federal withholding tax deductions• Calculate social security and Medicare tax

deductions• Calculate total deductions and net pay

Start up

• Janice is single and has just graduated from community college. She needs at least $480 each week to pay for her rent and other living expenses to afford to live alone. Is she earns $13 an hour and works 40 hours per week, will she earn enough to pay her living expenses.

• Math Builder page 40

Federal withholding tax deduction

• Deductions – are subtracted from gross pay• Withholding taxes- also called income tax is taken out of

gross pay for the federal government and sometime for the state and local governments.

• The amount of withholding tax depends on the worker’s wage, marital status and number of withholdings claimed.

• Withholding allowance is used to reduce the tax withheld. The worker can claim one withholding allowance for themselves, another for their spouse and one for each child or dependent.

• See table on page 41

Social security and Medicare tax deduction

• FICA – Federal Insurance contribution Act – Disability benefits– Medicare– Retirement Benefits– Survivor’s benefits

• The overall tax used in the book is 7.65%– Social Security is 6.2% (up to $80,400)– Medicare is 1.45%

Total Deduction and Net Pay

• Gross pay – deductions = net pay• Wrap Up• Team Meeting – page 44