Payroll and Tax Deductions

PAYROLL AND TAX DEDUCTIONS Most employees aren't aware of all the deductions from their wages. It's important ------------------------ for everyone to understand what is being taken out of their paychecks and why. What Gets Taken Out of Your Paycheck There are 6 common payroll deductions made from an employee's earnings: FEDERAL INCOME TAX WAGE GARNISHMENT X COMPANY Earnings Statement New Town, U.S. I. The amount STANLEY H. • Employers also are required to withhold from the employees | earnings in order to | pay a debt. withheld is based on 201 MAIN STREET Social Security Number: 999 - 99 - 999 Taxable Marital Status: Married taxable income, pay ! frequency, marital Istatus, and the I number of MYTOWN, U.S. EARNINGS Rate Hours This Period Regular 10.00 32.00 320.00 Overtime 15.00 1.00 15.00 allowances claimed. Holiday 10.00 8.00 STATE INCOME TAX 80.00 Gross Pay $ 415.00 Social Security DEDUCTIONS Statutory Federal Income tax O Social Security 3 Medicare Tax 4 Other Deductions O State Income Tax O Wage Garnishment Net Pay | • Flat percentage I deducted based on I taxable income • Based on your W-4 I and/or State Income Tax Form ! 42.00 30.00 6.00 • Based on taxable 15.00 T. May appear on your ! paycheck as FICA 17.00 income, marital 15.00 status, and $ 320.00 allowances MEDICARE TAX 3 • Flat percentage deducted based on taxable income 4 OTHER DEDUCTIONS May appear on your paycheck as FICA Insurance policies that vary based on employer or state policy *Not all states have state income tax. Federal Tax Brackets These percentages reflect how much of your paycheck will be deducted for Federal Income Tax and the remainder may be distributed among the sections listed above.* IF YOUR TAXABLE INCOME IS BETWEEN YOUR TAX BRACKET IS $0 - $8,700 10% $8,700 - $35,350 15% $35,350 - $85,650 25% $85,650 - $178,650 28% $178,650 - $388,350 33% $388,350 - Above 35% "Single filing Social Security Contribution rates for these benefits the boss Pm my boss EMPLOYEE EMPLOYER SELF-EMPLOYED 4.2% 6.2% 10.4% on earnings up to on earnings up to on earnings up to $110,100 $110,100, O $110,100 Medicare Taxes Rates vary depending on your role EMPLOYER/EMPLOYEE (each) SELF-EMPLOYED 1.45% ON ALL EARNINGS 2.9% ON ALL EARNINGS Other Deductions Disability deductions are meant to recognize the expenses for care of a disabled person, allowing them or a family member to work. Types of Disability Deductions ** Cafeteria Plans HSA or FSA Standard Health or Dental Deduction Dependant Care Uniform Charity Special State Tax Situations: Exceptions to the Norm There are 9 states that don't collect income taxes: • Alaska • Florida • Nevada • South Dakota • New Hampshire . Техas • Washington Wyoming • Tennessee New Hampshire and Tennessee only collect income taxes on interest income and dividends. The highest incremental state tax rate is in Hawaii and Oregon: 11%. The following states have only one income tax bracket, a flat rate that charges all residents one rate on all income: • Colorado: • Illinois: • Indiana: • Massachusetts: 5.3% • Michigan: • Pennsylvania: • Utah: 4.63% 5% 3.4% 4.35% 3.07% Hawaii has the highest number of tax brackets at 12, ranging from 5% 1.4%-11%. Wage Garnishments and Assignments Wage Garnishments For assistance on collecting debts, creditors go to the courts. If the court grants the creditor's request, a summons will be issued, and the employer will be instructed to withhold a certain amount from the employee's paycheck in order to pay off the employee's debt. When the employer receives the summons, it is required to determine how much of the wages are subject to the garnishment order. It will then issue a check for that amount. $$$$$ The Federal Consumer Credit Protection Act (CCPA) regulates the amount to be withheld. If there are discrepancies between the CCPA and the state, the employer must apply the amount that protects the employee most. State laws can also regulate the amount. If multiple garnishments are requested for the same employee, those that involve child or spousal support, tax levies, or student loans may take priority over the first garnishment order. Wage Assignments A wage assignment is a voluntary agreement between the employee and creditor to assign a portion of the employee's wages to pay off a debt. Court-ordered garnishments can be avoided because wage assignments are usually signed when the debt is incurred. The amount deducted is not regulated by the CCPA, unless it is unpaid and leads to a court-ordered garnishment. Wage assignments are regulated in some states. Others just apply the state's law of contracts, while other states completely prohibit them. Sources • http://retirementliving.com/ritaxes.html • http://www.money-zine.com/financial-planning/tax-shelter/ttate-sales-tax-rates/ • http://www.fvidlaw.com/?t=40&an=3119&format=xml • http://www.ehow.com/list_6710051_paycheck-deduction-laws.html • http://www.suite101.com/content/what-are-supplemental-wages-and-how-are-they-taxed-a294071#ixzzlujf32swn • http://ssa.gow/pubs/10003.html • http://www.socialsecurity.gov/pubs/10006.html • http://ais-ss.uSc.edu'empldoc/faq/faq5.html • http://www.moneychimp.com/features/tax_brackets.htm • http://www.hud.gov/offices/cpd/affordablehousing/training/web/calculator/adjustedincome/disability.cfm • http://www.irs.gow/newsroom/artikle/0,d=204070,00.html September 2011