Okay, here are the steps: 1) Federal tax withholding (from tables): $36 2) Social Security tax (6.2% of $628): $38.93 3) Medicare tax (1.45% of $628): $9.11 4) Medical insurance: $28 5) Union dues: $12 Total deductions: $36 + $38.93 + $9.11 + $28 + $12 = $124.04 Net pay: $628 - $124.04 = $503.96 So the deductions are $124.04 and the net pay is $503.96.

1. NET INCOM
E
ACOS
OBJECTIVE
ALGEBRA
1: USE
ALGEBRAIC
TECHNIQUES
TO
M
AKE
FINANCIAL AND
ECONOM
IC
DECISIONS.

2. REMINDER!
If you have or have had a job, please consider sharing what your pay
stub looks like with the class by bringing it in.

3. KEY QUESTIONS
Do you agree with the statement:
Managing your life means
managing your money.
Why do you need to know how
much money you’ll bring in?
Is it necessary to check that the
withholdings and the
deductions are correct? Why
or why not?
What are some common
deductions taken from wages?

4. What You’ll LearnWhat You’ll Learn
Section 2-1Section 2-1 Read tables to find the amount withheld for
federal income tax.
Compute the state tax on a straight percent
basis.
Determine the state taxes on a graduated
income basis.
Work out the amount of income withheld for
Social Security and Medicare taxes.
Section 2-Section 2-33
Section 2-Section 2- 44
Section 2-Section 2-22
Section 2-5Section 2-5 Calculate the deduction for group
insurance.
Figure out net pay per pay period.Section 2-Section 2-66

5. Federal taxes are necessary to keep the
government agencies and services afloat
(defense,
Federal Income Tax (FIT) - employers are
required by law to withhold a certain amount of
their pay for FIT.
The Internal Revenue Service (IRS)- provides
employers with tables that show how much
money to withhold.

6. WHAT DO YOUR FEDERAL INCOME TAXES DO?

7. HOW DOES THE USA COMPARE TO OTHER COUNTRIES?

8. The amount withheld depends on your
income, marital status, and withholding allowances.
You may claim one allowance for yourself, one for your
spouse if you are married, and additional allowances
for any others you support.
You may request to have more money withheld – you
would want to do this if you expect to owe money.
Each year, you should reevaluate how much is withheld
and make appropriate adjustments by filling out a
W4 form.
Employers then take the information from your W4 and
use tax tables to look up how much to withhold from
your pay.

9. EXAMPLE 1
Carla’s gross pay for this week is
$425.88. She is married and claims 2
allowances-herself and her husband.
What amount will be withheld from
Carla’s pay for FIT?
Step1: Find the income range from the
federal tax tables on pages 788-791 in
your textbook.
Step 2: Find the column for 2
allowances
Step 3: The amount of income to be
$19

10. EXAMPLE 2
Lance’s gross pay for this week is
$460.00. He is married and claims 1
allowance. What amount will be withheld
from Lance’s pay for FIT?Steps:
1. Find the income range from the
federal tax tables on pages 788-791 in
your textbook.
2. Find the column for 1 allowance.
3. The amount of income to be withheld
is…
$31

11. Use the tax tables on pages 788-791 in
your textbook to find the amount withheld.
Joseph Napoli, single.
Earns $524 per week.
Claims 2 allowances.
What is the FIT withheld?
YOUR TURN!
$48

12. Use the tax tables on pages 788-191 in
your textbook to find the amount withheld.
Amanda Hagel earns $476 a week. She is
married and claims 2 allowances. Next
year she will have a child and will claim an
additional allowance. How much less will
be withheld for federal income tax next
year?
YOUR TURN AGAIN!
$312

13. EXAMPLE 3
Elijah is paid $427 a week. He is
married and claimed 3 allowances last
year. This year he lowered his
allowances to 1 because he hopes to
receive a refund on his next tax return.
How much more in withholdings is
deducted from his weekly pay now that
he claims just 1 allowance?
$25 - $13 = $12

14. Most states require employers to withhold a
certain amount of your pay for state income
tax.
In some states, the tax withheld is a percent of
your taxable wages.
Your taxable wages depend on personal
exemptions, or withholding allowances, which
allow for supporting yourself and your family.

15. Important Questions What formula do I use?
How do I calculate
taxable wages?
Taxable Wages = Annual Gross Pay – Personal Exemptions
How do I calculate
annual tax withheld?
Annual Tax Withheld = Taxable Wages x Tax Rate

16. WHAT DO YOUR STATE INCOME TAXES DO?

17. HOW DOES ALABAMA COMPARE TO OTHER STATES?
The state tax national average is 11%
and Alabama is…

18. EXAMPLE 4
Patricia’s gross pay is
$65,800 a year. The state
income tax rate is 3 percent
of taxable wages. She takes a
married exemption for herself
and her husband.
How much is withheld from
her gross earnings for state
income tax within this year?Step 1: Find the taxable wages.
Annual Gross Pay – Personal Exemptions
$65,800.00 – $3,000.00 = $62,800.00
Step 2: Find the annual tax withheld.
Taxable Wages × Tax Rate
$62,800.00 × 3% = $1,884.00 tax

19. EXAMPLE 5
Tony’s gross pay is $44, 750 a year. The state
income tax rate is 3 percent of taxable wages.
He takes a single exemption for himself and 1
personal exemption for a child. How much is
withheld from his gross earnings for state
income tax for the year?Step 1: Find the taxable wages.
Annual Gross Pay – Personal Exemptions
$44,750 – ($1,500 + $700) =
$44,750 – $2,200 = $42,550
Step 2: Find the annual tax withheld.
Taxable Wages × Tax Rate
$42,550 × 3% = $1,276.50 tax withheld

20. Find the amount withheld:
Tomoko Nakazawa.
Earns $38,657 annually.
Married, no dependents.
What are her personal exemptions?
YOUR TURN
$3,000

21. Paul Chamello earns $168,000. He is
single. His personal exemptions include
himself and his five children. The state tax
rate is 2.5 percent of taxable income.
What amount is withheld yearly for state
income tax?
MORE YOUR TURN!
$4,075

22. Elizabeth earns $88,900 annually. She is
married with 4 dependents. The state tax
is 3.8%.
What is withheld for the state tax?
MORE YOUR TURN!
$3,157.8
0

23. Reyna earns $43,500 annually. She is
single with 2 dependents. The state tax is
4.2 %.
What are her personal exemptions?
What is withheld for the state tax?
MORE YOUR TURN!
$2,900
$1,705.2
0

24. Sarah earns $52,388 annually. She is
married with 2 children. The state tax is
3.5 % of taxable income.
What is withheld yearly for the state
income tax?
MORE YOUR TURN!
$1,679.5
8

25. Pg 120-121
#1-15
ASSIGNMENT

26. W
HAT DO
YOU
THINK?
Do you think it is
fair for someone
who earns
$10,000
annually to be
taxed at the
same rate as
someone who
earns $90,000

27. Graduated Income Tax- involves a different tax rate
for each of several levels of income.
Alabama has a graduated state income tax.
The tax rate increases as income increases.
The tax rate on low incomes is usually 1% to 3%.
The tax rate on high incomes may be as much as
20%.
Annual Tax Withheld
Tax Withheld per Pay Period
Number of Pay Periods per Year
=
How many months do you think the
average person works just to pay
taxes?

28. EXAMPLE 6
Louise’s annual salary is $34,500. She is paid
semimonthly (twice a month). Her personal
exemptions total $1,500. How much does her
employer deduct from each of her semimonthly
pay checks for state income tax?
Step 1: Find the taxable wages.
Annual Gross Pay – Personal
Exemptions
$34,500.00 – $1,500.00 =
$33,000.00

29. Step 2: Find the annual tax withheld.
1. First $1,000: 1.5% of $ 1,000.00 = $
2. Next $2,000: 3.0% of $ 2,000.00 =
3. Next $2,000: 4.5% of $ 2,000.00 =
4. Over $5,000: 5.0% of ($33,000.00 –
$5,000.00)
5.0% of =
Total
15.00
60.00
90.00
1,400.0
0
$1,565.0
0
$28,000.0
0
Taxable Wages = $33,000.00

30. Step 3: Find the tax withheld per pay
period.
Annual Tax Withheld ÷ Number of Pay Periods per Year
Remember she is paid semi-monthly (twice a month)
Annual Tax Withheld =
$1,565.00
$1,565.00 ÷ 24 = $65.208 =
$65.21

31. Patricia Hanson.
Annual gross pay of $24,300.
Personal exemption of $1,500.
2 percent state tax on first $5,000.
3 percent state tax on amount over
$5,000.
What is her taxable income?
YOUR TURN
$22,800

32. MORE YOUR TURN!
Caroline Pollack’s gross pay is $31,452. She
has personal exemptions of $3,600.
How much is withheld from her semimonthly
(twice a month) paycheck for state income
tax? Round to the nearest cent ..
State Tax
Annual Gross
Pay
Tax Rate
First $3,500 3.0%
Next $3,500 4.5%
Over $7,000 7.0%
$71.76

33. The Federal Insurance Contributions Act (FICA)
requires employers to deduct 5.65% of your gross
income for Social Security and Medicare taxes.
Employers must also contribute 7.65% for each
employee.
Social Security funds the federal system of
retirement and disability benefits. Medicare funds
health insurance for those 65 years and older.
FICA Tax Employee Employer
Social
Security
4.2% up to
$4,485.60
6.2% up to
$6,621.60
Medicare 1.45% (no limit) 1.45% (no limit)
Tax Withheld = Gross Pay x Tax
Rate

34. EXAMPLE 7
Otis’ gross biweekly pay is $648.00. His earnings to
date for the year total $15, 228. What amount is
deducted from his pay this week for Social Security
taxes? For Medicare taxes? What is the total
deduction from each pay check?Step 1:Find the Social Security tax withheld.
Gross Pay × Tax Rate
Step 2: Find the Medicare tax withheld.
Gross Pay × Tax Rate
Step 3: Find the total deduction.
Social Security Tax + Medicare Tax
$648.00 × 4.2% = $27.216 = $27.22
$648.00 × 1.45% = $9.396 or $9.40
$27.22 + $9.40 = $36.62

35. Find the Social Security and Medicare
taxes withheld for this pay period.
Tom Mendoza.
Monthly salary $4,800.
How much deducted this pay period for
Social Security? For Medicare?
YOUR TURN
FICA Tax Employee
Social
Security
4.2% up to
$4,485.60
Medicare 1.45% (no limit)
For Social Security: $201.60
For Medicare: $69.60

36. Stephanie Metcalf earns $116,000.04 a year. Her salary is paid
monthly. What are her year-to-date earnings for November? How
much is deducted from her check in November for Social
Security? For Medicare?
How much is deducted from her check in December for Social
Security? For Medicare?
MORE YOUR TURN!
FICA Tax Employee
Social
Security
4.2% up to
$4,485.60
Medicare 1.45% (no limit)
Year-to-date earnings for November:
Social Security deduction in November:
Medicare deduction in November:
Social Security deduction in December:
Medicare deduction in December:
$106,333.37
$406.00
$140.17
$19.60
$140.17

37. Some businesses offer group insurance plans for a lower
cost than individual insurance.
Businesses usually pay part of the cost of the insurance
and the employee pays the rest.
Employee’s share = Annual Amount x Employee’s Percent
The employee’s amount is usually deducted each pay
period, like taxes.
Deductions per Pay Period =
per YeardsPay PerioofNumber
eby EmployedAmount PaiAnnualTotal

38. EXAMPLE 8
Lawrence Butler is a manager for Sound
Pharmaceuticals. He has family medical coverage
through the group medical plan that Sound provides
for its employees. The annual cost of Butler’s family
membership is $4,500. The company pays 80% of the
cost. How much does he pay annually for medical
insurance?
Step 1: Find the percent paid by employee.
100% – Percent Company Pays
100% – 80% = 20%
Step 2: Find the total amount paid by employee.
Annual Amount × Employee’s Percent
$4,500 × 20% = $900.00

39. EXAMPLE 9
Nicholette McClure is a carpenter for Olympia Construction
Company. She has family medical coverage through the group
medical plan that Olympia provides for its employees. The
annual cost of her family membership is $5,000. The company
pays 75% of the cost. How much is deducted from her biweekly
paycheck for insurance?
Step 1: Find the percent paid by employee.
100% – Percent Company Pays
100% – 75% = 25%
Step 2: Find the total amount paid by employee.
Annual Amount × Employee’s Percent
$5,000 × 25% = $1,250
Step 3: Find the deduction per pay period.
per YeardsPay PerioofNumber
eby EmployedAmount PaiAnnualTotal
$1,250 ÷ 26 = $48.08

40. Annual cost of insurance: $4,160.
Employer pays 80 percent.
52 pay periods.
Find the deduction per pay period.
YOUR TURN
$16

41. Ken Fujimoto’s employer pays 90 percent of
his medical insurance and 60 percent of his
dental insurance. Medical insurance costs
$3,400 per year and dental insurance is
$1,300.
How much is deducted from Ken’s
semimonthly pay for medical insurance? How
much for dental insurance?
YOUR TURN AGAIN!
Medical: $14.17
Dental: $21.67

42. Net pay is the amount you have left over after
all tax withholdings and personal deductions
have been subtracted from your paycheck.
Net Pay = Gross Pay – Total
Deductions

43. Alysha Moore’s gross weekly salary is $600.
She is married and claims 3 allowances. The
Social Security tax is 6.2 percent. The
Medicare tax is 1.45 percent. The state tax is
1.5 percent. Each week she pays $12.40 for
medical insurance and $2.50 for charity.
Is Moore’s earnings statement correct?
Example 1Example 1

44. Step 1: Find the total deductions.
a. Federal withholding
b. Social Security: 6.2% of $600.00
c. Medicare: 1.45% of $600.00
d. State tax: 1.5% of $600.00
e. Medical insurance
f. Charity
Total
Example 1 Answer:Example 1 Answer:
Step 2: Find the net pay.
Gross Pay – Total
Deductions
$600.00 – $104.80 =
$495.20
$35.00
37.20
8.70
9.00
12.00
2.50
$104.80

45. Find the deductions and the net pay. Social Security is 6.2 percent of
the first $84,900. Medicare is 1.45 percent of all income.
Use the tax tables on pages 788-791 in your textbook for federal tax.
Round to the nearest cent.
YOUR TURN
Pierre Lamont is married and claims 4
allowances. His gross weekly salary is $628.
Each week he pays federal, Social Security,
and Medicare taxes, as well as $28 for
medical insurance and $12 for union dues.
What are his deductions and his net pay?
Federal: $29
Social Security: $38.94
Medicare: $9.11
Net pay: $510.95

46. Find the deductions and the net pay. Social Security is 6.2 percent of
the first $84,900. Medicare is 1.45 percent of all income.
Use the tax tables on pages 788-791 in your textbook for federal tax.
Round to the nearest cent.
MORE YOUR TURN!
Michele Sawyer is single and claims 1 allowance.
She earns $11.50 per hour as a pest controller and
works 40 hours.
Deductions include federal income tax, Social
Security, and Medicare. State taxes are 4 percent of
gross income, and local taxes are 2 percent of gross
income. She pays $42.75 per week for medical
insurance.
What are her deductions and net pay for the week?

47. JOURNAL ENTRY = TICKET OUT THE DOOR
Write several sentences describing
your philosophy on money.