Lesson Objective Compute the amount withheld for Social Security and Medicare taxes. Two separate programs!

Content Vocabulary

Social SecurityMedicare

Social SecurityA federal government program to pay for retirement and disability benefits.

Calculating Social Security taxes

• Social Security Tax Withheld = Gross Pay x Social Security Tax % (.062)

• (Social Security Tax Rate = 6.2% of the first $110,100 earned per year)

• Write this in your notes: The book uses $97,500 instead of $110,100

• What happens after that??????• Progressive, Regressive, Proportional (flat)

Categories of taxes: Compared to your income• Progressive

– Federal• Proportional (flat)

– Local , Medicare, Social security on first $110 100,– PA State, Unemployment

• Regressive – Excise tax, property tax– Sales Tax– Usually taxes that are not based on your income

Social Security (6.2%)

• Social Security Tax

• 6.2% (.062)

• $0.00 $110,100

0 % on remaining income for tax year

Calculating Medicare tax:

• Medicare Tax Withheld = Gross Pay x Medicare Tax %

• (Medicare Tax Rate = 1.45% of all earnings)

• Your employer must also contribute an amount that equals your Social Security and Medicare contributions.

Medicare

Pay Period 6/11/2004-7/11/2004$1,502.10$250.35Totals

$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00

Federal WithholdingState WithholdingFed OASDI/ EE or Social SecurityFed MED/ EE or MedicareMedical401K

$1,353.33

Year-to-dateCurrentDeductionsPay Type-Gross Pay

Employee Address293 Michael GroveBillings, MT 59102

Check Amount$1,102.98

Check #164

SSN201-92-4856

EmployeeBeakens, Joe

On-The-Go

Pay Period 6/11/2004-7/11/2004$1,502.10$250.35Totals

$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00

Federal WithholdingState WithholdingFed OASDI/ EE or Social SecurityFed MED/ EE or MedicareMedical401K

$1,353.33

Year-to-dateCurrentDeductionsPay Type-Gross Pay

Employee Address293 Michael GroveBillings, MT 59102

Check Amount$1,102.98

Check #164

SSN201-92-4856

EmployeeBeakens, Joe

On-The-Go

1353. 33 x .0145 = ?????

Back checking:

Social security deduction / Gross pay =

Medicare deduction/ Gross pay =

Results:

Aaron’s gross biweekly pay is $728.00. His earnings to date (so far this year) total $26,208. What amount is deducted from each pay for Social Security taxes? For Medicare taxes? What is the total deduction?

Find the Social Security tax withheld:• 728.00 x 6.2% = $45.136 = $45.14• Find the Medicare tax withheld:• $728.00 x 1.45% = $10.556 = $10.56• Find the total deduction:• $45.14 + $10.56 = $55.70

Carrie’s weekly pay is $2,500. Her earnings to date for this year total $110,100. What amount is deducted from her pay for Social Security taxes? What amount is deducted for Medicare?

• What amount is deducted for Social Security?• Nothing—she has already earned over $110,100• What amount is deducted from her pay for Medicare

taxes?• $2,500 x 1.45% = $36.25• Find the total deduction. $36.25

Closure:

• What is the problem with Social Security?

• What should you do now to prepare?

• What is the current rate deducted for SS?

• What is the current rate deducted for Medicare?

Assignment:

Section 2.4, p. 138, 7-10, 11 (challenge)For #11, calculate pay per month first and remember that the cap in the book on SS is $97,500. Must use the book’s number to calculate this problem.

Answer Key for 2.4 assignment: 7, 8

7. (a) $385.83 ($6,223 x .062)(b) 90.23 ($6,223 x .0145)

 8. (a) $117.39 $45,440 x .062 = $2,817.28 ÷

24 (rounded)

$27.45 $45,440 x .0145 = $658.88 ÷ 24

(b) $144.84 $117.39 + $27.45

Answer Key for 2.4 assignment: 9, 10

9. a) $41.00 tax tables $32.61 $526 x .062 $7.63 $526 x .0145

(b)$81.24 $41 + $32.61 + $7.63

10. (a) $27.00 tax tables $34.10 $550 x .062

$7.98 $550 x .0145(b) $69.08 $27 + $34.10 + $7.98

Answer Key for 2.4 assignment: 1111. (a) SS = $475.33 $98,000 ÷ 12 = $8,166.67 per month As of end of November she has been paid 89,833.37 (8166.67 x 11)You only pay SS on the first $97,500 She is owed $8,166.67 for her December paycheckShe will not pay full SS on her December paycheck because she will

pass the $97,500 cap. Ex: (89,833.37 + 8,166.67 = 98,000.94)Subtract to find out what amount to use to calculate Social Security

97,500 – 89,899.37 = 7,666.63 She owes SS on $7,666.63

$7,666.63 x .062 = $475.33