LESSON 12-2

1. LESSON 12-2 Determining Payroll Tax Withholding

2. Payroll Taxes • Taxes based on the payroll of a business are called payroll taxes • Based on total employee earnings • Government may implement fine if incorrect taxes paid LESSON 12-2

3. Employee Income Tax • A business must withhold federal income taxes from employee total earnings • Federal income taxes must be held in company then forwarded on to the federal government • Employers may also be required to withhold state, city, or county income taxes on employee earnings LESSON 12-2

4. Withholding Allowances • A deduction from total earnings for each person legally supported by a taxpayer, including the employee is called a withholding allowance • W-4 Form • Based on marital status and number of withholding allowances LESSON 12-2

6. Withholdings cont… • Most employees required to have federal income taxes withheld from salary • Exceptions are for certain low-income or part-time employees • Cannot claim exemption from withholding if you make more than $750 or have a dependent • The more dependents you claim the more $ you will receive in your paycheck LESSON 12-2

7. Social Security and Medicare Tax • Social Security Tax: a federal tax for old-age, survivors, and disability insurance • Medicare Tax: a federal tax paid for hospital insurance • Paid by both the employee and the employer • Pay what employee owes and match it with contribution of the same • Tax Base: the maximum amount of earnings on which a tax is calculated • Congress can change at any time (currently 6.2% rate and $87,000 per year LESSON 12-2

8. EMPLOYEE’S WITHHOLDING ALLOWANCE CERTIFICATE page 346 3 2 1 4 5 1. Write the employee’s name and address 2. 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

9. 2 3 EMPLOYEE’S INCOME TAX WITHHOLDING – MARRIED PERSONS page 348 1 1. Select the appropriate table. 2. Locate the employee’s total earnings. 3. Intersection of wages and number of allowances column. LESSON 12-2

10. TERMS REVIEW page 350 • payroll taxes • withholding allowance • social security tax • Medicare tax • tax base LESSON 12-2