Payroll Taxes

1. Payroll Taxes You pay them every time you get paid. (2007 version) (about 40 very quick slides)

2. Californian employees pay 5 payroll taxes • Federal Income Tax • FICA—Medicare Tax • FICA—Social Security Tax • State Income Tax • State Disability Insurance (SDI)

3. Federal Income Tax This tax money is used mostly for military spending. Also used for food stamps, federal courts, national parks, NASA, FBI, and other national agencies and departments.

4. Federal Income Tax • the rate of tax increases with your income ProgressiveTax • the more you make, the higher the tax rate

5. Federal Income Tax • 6 different tax rates (called “brackets”) highest = 35% lowest = 10%

6. 2007 Federal Income Tax 6 Federal Income Tax Brackets $349,700 $160,850 $77,100 $31,850 $7,825

7. 2007 Federal Income Tax Earned $6,000 in a year $349,700 $160,850 $77,100 $31,850 $7,825 }6000 x 10% = 600 tax owed: 600

8. 2007 Federal Income Tax Earned $24,960 in a year $349,700 $160,850 $77,100 $31,850 $24,960 }17135 x 15% = 2570.25 $7,825 } 7825 x 10% = 782.50 tax owed: 3352.75

9. 2007 Federal Income Tax Earned $49,960 in a year $349,700 $160,850 $77,100 $49,960 }18110 x 25% = 4527.50 $31,850 }24025 x 15% = 3603.75 $7,825 } 7825 x 10% = 782.50 tax owed: 8913.75

10. How much is the Federal Income Tax for someone who made $7,925 in a year?

11. 2007 Federal Income Tax Earned $7,925 in a year $349,700 $160,850 $77,100 $31,850 100 x 15% = 15.00 $7,925 $7,825 7825 x 10% = 782.50 tax owed: 797.50

12. $7,925 x 15% How much is the Federal Income Tax for someone who made $7,925 in a year? $100 x 15% = $15.00 $7,825 x 10% = $782.50 $797.50

13. How much is the Federal Income Tax for someone who made $20,000 in a year?

14. 2007 Federal Tax Rate SchedulesSchedule X - Single 20,000 earned tax

15. Earned 20,000 in a year $782.50.00 + 15% of the amount over 7,825.00 $782.50 + 15% of (20,000 - 7,825) $782.50 + 0.15 x (20,000 - 7,825) $782.50 + 0.15 x (12,175) $782.50 + 1,826.25 $2,608.75

16. FICA—Medicare Tax This tax money is used by old people for their health care. Doctor’s appointments, medicine, wheelchairs, walkers, etc.

17. FICA—Medicare Tax • Proportional Tax • everyone pays the same rate, regardless of income • FICA stands for “Federal Insurance Contributions Act”

18. no brackets 1.45% $ FICA—Medicare 1.45% on all money earned in a year

19. FICA—Social Security Tax This tax money is used by old people for anything they want. It is their retirement money.

20. FICA—Social Security Tax • Regressive Tax • the rate of tax decreases with income • Social Security Tax has a tax base • Once you earn more than the tax base, you don’t have to pay the tax anymore.

21. FICA—Social Security 6.20% on first $97,500 earned in a year 0% on income over $97,500 $97,500

22. State Income Tax This tax money is used mostly to fund education. Also used for CHP, innerstate roads, DMV, prisons, etc.

23. State Income Tax • Progressive Tax • the rate of tax increases with your income • the more you make, the higher the tax rate

24. State Income Tax • 6 different tax rates (called “brackets”) highest = 9.3% lowest = 1%

25. 2007 CA Income Tax 6 California Tax Brackets 9.3% $44,814 8% $35,460 6% $25,554 4% $16,185 2% $6,827 1%

26. 2007 CA Income Tax Earned $5,000 9.3% $44,814 8% $35,460 6% $25,554 4% $16,185 2% $6,827 }5,000 x 1% = 50 1% Tax owed: 50

27. 2007 CA Income Tax Earned $12,000 9.3% $44,814 8% $35,460 6% $25,554 4% $16,185 $12,000 2% }5,173 x 2% = 103.46 $6,827 }6,827 x 1% = 68.27 1% Tax owed: 198.73

28. 2007 CA Income Tax Earned $18,000 9.3% $44,814 8% $35,460 6% $25,554 $18,000 4% }1,815 x 4% = 72.60 $16,185 }9,358 x 2% = 187.16 2% $6,827 }6,827 x 1% = 68.27 1% Tax owed: 328.03

30. State Disability Insurance (SDI) This tax money is used by people hurt away from work and need temporary help with living expenses.

31. State Disability Insurance (SDI) • Regressive Tax • the rate of tax decreases with income • SDI has a tax base • Once you earn more than the tax base, you don’t have to pay the tax anymore.

32. State Disability Insurance (SDI) 0.60% on first $83,389 earned in a year 0% on income over $83,389 0% $83,389 0.60%

33. Review

34. Californian employees pay 5 payroll taxes Federal Income Tax 10% to 35%

35. Californian employees pay 5 payroll taxes FICA—Medicare Tax 1.45% on all income (no tax base)

36. Californian employees pay 5 payroll taxes FICA—Social Security Tax has a tax base • 6.20% on first $97,500 earned in a year • 0% on money earned over $97,500

37. Californian employees pay 5 payroll taxes State Income Tax 1% to 9.3%

38. Californian employees pay 5 payroll taxes State Disability Insurance (SDI) has a tax base 0.60% on first $83,389 earned in a year 0% on money earned over $83,389

39. Homework Tri Tran made $5,000 last year. 1. What was her Federal Income Tax? 2. What was her FICA—Medicare Tax? 3. What was her FICA—Social Security Tax? 4. What was her State Income Tax? What was her State Disability Tax? Answer the same questions for Al Tog. He made $10,000 last year.

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