What different types of taxes are deducted from employee’s paychecks? LESSON 12-2 1 DO NOW.

What different types of taxes are deducted from employee’s paychecks?

LESSON 12-2 1

DO NOW

The company collects taxes and passes it on to the government

These taxes are deducted from your “gross pay” leaving you with “net pay”. This is the amount that your check is actually written out for.

For example, your “gross pay” may be $1,000 but your “net pay” after taxes is $750.

LESSON 12-2 2

PAYROLL TAXES

Medicare: taxes for national health insurance Social Security (SSI): Social Security retirement benefits

Federal Income Tax: “pre-pay” income tax that you will owe in April.

State Income Tax: “pre-paying” income tax that you will owe

Local Income Tax: may or may not be applicable depending on the city you work

PAYROLL TAXES COLLECTED

Medicare and Social Security are collected based on fixed % of your income (varies depending on income level with maximum amounts you can pay.

Income taxes are collected based on your income level and withholding deductions from the W-4 you fill out. Income taxes due 4/15 to Federal and State entities You receive a W-2 summarizing the taxes you paid already On your tax return, you calculate the actual amount you owe

based on income and allowed deductions. If the company collected more than you owe, you get a

REFUND If the company collected less than you owe, you OWE TAXES

HOW DO PAYROLL TAXES WORK?

W-2

EMPLOYEE’S WITHHOLDING ALLOWANCE CERTIFICATE

112233

44

55

1. Write the employee’s name and address2. Write the employee’s social security number.3. Check the appropriate marital status block.4. Write the total number of withholding allowances claimed.5. The employee signs and dates the form.

LESSON 12-2

W-4