What special day is it?What special day is it?

What happened to my What happened to my paycheck???paycheck???

Lets see what happens to our Lets see what happens to our incomeincome

$60,000/year$60,000/year $5,000/month$5,000/month $2,500/pay period (every other week)$2,500/pay period (every other week)

How much will we actually take How much will we actually take home??home??

Step One: The Payroll Tax Step One: The Payroll Tax

Payroll Tax Rates

Social Security tax rate

6.20%

Medicare tax rate 1.45%

Total payroll taxes 7.65%

$4500/year

$191.25/pay period

$2308.75 NEW PAY

The Payroll Tax: Purpose The Payroll Tax: Purpose

Social Security Tax

FICA (Federal Insurance Contributions Act) FICA (Federal Insurance Contributions Act)

Benefits for: the dependents of retired workers Benefits for: the dependents of retired workers And for the disabled and their dependentsAnd for the disabled and their dependents

Medicare Tax

Medical benefits for certain individuals when they Medical benefits for certain individuals when they reach age 65. reach age 65.

Workers, retired workers, and the spouses of Workers, retired workers, and the spouses of workers and retired workers are eligible to receive workers and retired workers are eligible to receive Medicare benefits upon reaching age 65.Medicare benefits upon reaching age 65.

Step 2: Federal Income Tax

Progressive Tax Tax rate 25%15,000/year; $625/paycheckDOWN TO $1683/paycheck

Federal income taxes: Purpose

1. national defense, veterans, and foreign affairs 2. social programs 3. law enforcement 4. interest on the national debt

Step 3: State Taxes!Step 3: State Taxes!

Progressive Tax Progressive Tax

Tax Bracket (Single) [2] Tax Bracket (Couple) [3] Marginal Tax Rate

$0+ $0+ 1.40%

$20,000+ $20,000+ 1.75%

$35,000+ $70,000+ 3.50%

$40,000+ $80,000+ 5.53%

$75,000+ $150,000+ 6.37%

$500,000+ $500,000+ 8.97%

$3318/year$138.25/pay periodFINAL PAY: $1544.75

How much we actually make?How much we actually make?

Gross PayGross Pay - Social Security taxes- Social Security taxes

- Medicare taxes- Medicare taxes - Federal Income tax withheld - Federal Income tax withheld

- State income tax - State income tax - - Misc: Retirement, Healthcare, Misc: Retirement, Healthcare,

dues, et cetera dues, et cetera ________________________________________________________________

Net PayNet Pay

How much do we actually make??How much do we actually make??

$60,000/year GROSS$60,000/year GROSS is actually $37,182/year NETis actually $37,182/year NET

That does not account for other deductions…That does not account for other deductions…That is only taxes!! That is only taxes!!

Insurance Deductions: health, dental and life insurance.

Retirement Plan Contributions: .

Can we get any of that money Can we get any of that money back?back?

Fill out your W-4sFill out your W-4s

Was it easy?Was it easy? What is the purpose of this form?What is the purpose of this form? determines how much federal income tax determines how much federal income tax

to withholdto withhold Is that weird? Is that weird? You can manipulate the amount you want You can manipulate the amount you want

withheld since more than your tax bracket withheld since more than your tax bracket impacts how much you pay in taxesimpacts how much you pay in taxes

The W4The W4 Filling out the W-4Filling out the W-4Depends onDepends on1. the employee's marital status, children, dependents1. the employee's marital status, children, dependents2. any additional amount the employee wants to 2. any additional amount the employee wants to

withholdwithhold3. any exemptions from withholding that the employee 3. any exemptions from withholding that the employee

claims.claims.

More More allowancesallowances = less taxes are taken out of = less taxes are taken out of paycheck; Less paycheck; Less allowancesallowances = less money taken out = less money taken out

Why???? Why???? http://apps.irs.gov/app/withholdingcalculator/http://apps.irs.gov/app/withholdingcalculator/ IRS withholding calculator IRS withholding calculator

Lets fill it out again…Lets fill it out again…

Single, no children, no one else can claim Single, no children, no one else can claim youyou

Altering your taxes Altering your taxes

Why would you want to increase your Why would you want to increase your allowances?allowances?

Why would you want to decrease your Why would you want to decrease your allowances?allowances?

Is there a “PERFECT” way to fill out this Is there a “PERFECT” way to fill out this form?form?

What is next???What is next???

http://www.irs.gov/app/http://www.irs.gov/app/understandingTaxes/hows/mod01/understandingTaxes/hows/mod01/sim_mod01_01.jspsim_mod01_01.jsp

What do you need to complete What do you need to complete your taxes?your taxes?

Tax Time!!!!Tax Time!!!!

Tabulate your gross incomeTabulate your gross income W2 FORMS W2 FORMS Interest earningsInterest earnings Bonuses/ tipsBonuses/ tips DividendsDividends Any other income!Any other income!

What is an exemption?What is an exemption?

A way to “adjusting/decrease” your Gross A way to “adjusting/decrease” your Gross IncomeIncomeCharityCharityStudent loan interestStudent loan interestMoving expenses-workMoving expenses-work

When you are done reducing your gross When you are done reducing your gross income, you have an:income, you have an:Adjusted gross incomeAdjusted gross income

Full List DeductionsFull List Deductions IRA Deduction Archer MSA Deduction Health Savings Account Deduction (see the Instructions

for Form 8889) Student Loan Interest Deduction Moving Expenses Self-Employed Health Insurance Deduction Self-Employed SEP, SIMPLE, and Qualified Plans Penalty for early withdrawal of Savings Scholarship and Fellowship Grants excluded from income Domestic Production Activities Deduction

What form do I use?What form do I use?

1040 EZ: standard deduction1040 EZ: standard deduction

1/3: itemize: 1040 (schedule A)1/3: itemize: 1040 (schedule A)