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Section 2 Payroll Deductions

Chapter 12. $. Section 2 Payroll Deductions. What You’ll Learn Why deductions are calculated and reported. How to calculate deductions required by the federal government. How to determine voluntary deductions. $. $. $. Section 2 Payroll Deductions (cont'd.). Chapter 12. $.

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Section 2 Payroll Deductions

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  1. Chapter 12 $ Section 2 Payroll Deductions • What You’ll Learn • Why deductions are calculated and reported. • How to calculate deductions required by the federal government. • How to determine voluntary deductions. $ $ $

  2. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ Why It’s Important To prepare the payroll accurately and to comply with the law, both mandatory and voluntary deductions must be calculated correctly. $ $ • Key Terms • deduction • allowance • 401(k) plan $

  3. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ Computing Employee-Paid Withholdings $ • An amount that is subtracted from gross earnings is called a deduction. • Deductions include those required by law and those an employee wishes to have withheld from earnings. $ $

  4. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ Deductions Required by Law $ • Federal Income Tax • Social Security Tax • State and Local Income Taxes $ $

  5. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ Federal Income Tax The amount withheld for federal income taxes depends on three factors: $ • the employee’s marital status • the number of allowances claimed by the employee • the employee’s gross earnings $ $

  6. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ Social Security Tax There are two FICA taxes: social security and Medicare. The tax rates are as follows: Social security tax 6.20% Medicare tax 1.45% Total FICA taxes 7.65% (Deducted from each employee’s earnings until the maximum taxable earnings amount for the year is reached. This amount increases each year.) $ $ $

  7. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ State and Local Income Taxes • In some states and cities, the tax rates are set as a percentage of gross earnings. • In others, the amounts to be deducted are indicated on tables similar to the ones used for federal income tax. $ $ $

  8. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ Voluntary Deductions Common voluntary deductions include: $ • union dues • health insurance payments • life insurance payments • pension and other retirement contributions • credit union deposits and payments • U.S. savings bonds • charitable contributions $ $

  9. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ Check Your Understanding $ Which taxes are required to be withheld from employees’ pay? $ $

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