Determine Net pay Flashcards
What is the purpose of FICA taxes
Funds Social Security and Medicare
FICA rates
FICA payroll tax is 15.3% of the employee’s gross pay after pre-tax payroll deductions
Social Security - 6.2%
Medicare - 1.45%
The Social Security rate is applied to a wage base? What is the Wage base for year 2022
6.2% applied to a wage base of $147,000 so if employees make more than that amount in a year, no Social Security taxes are due once the limit is reached.
When is an employee subject to Additional Medicare Tax? Who pays it? What is the rate?
If the employee makes more than $200,000, they are also subject to the Additional Medicare Tax and must pay an additional 0.9% of wages beyond $200,000.
The employer only withholds the tax
WITHHOLDINGS
What is the purpose of Federal and State Income Taxes (FIT & SIT)?
Who pays for it?
Funds essential services provided by the federal and state governments.
The employee pays for it
How is FIT calculated?
Calculated based on the employee’s total income, filing status, and personal exemptions.
And pay frequency
Nine states that don’t impose SIT?
(Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming).
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In addition to State Income Taxes, SDI is also subtracted in states where an employee is expected to make a contribution. Can you name a few states where SDI is deducted?
California, Hawaii, New Jersey, New York, and Rhode Island
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SDI
State Disability Insurance
Name the three states that require Unemployment taxes to be withheld from employees
Alaska, New Jersey, and Pennsylvania.
Explain FUTA taxes
Employers have to pay 6% toward FUTA, though companies who pay their state unemployment taxes on time can receive a credit up to 5.4% towards their FUTA tax rate. After all is said and done, the FUTA tax rate usually equals 0.6% of all taxable wages—up to the first $7,000 earned for each employee.
The Federal Unemployment Tax Act (FUTA) provides a buffer for people who have recently lost their jobs.
Explain State unemployment insurance (SUI or SUTA)
SUTA or SUI provides a safety net for the unemployed.
Nearly every state has a different tax rate, which is usually determined by a business’s entity type and its history with unemployment claims.
What are post tax deductions/garnishments?
There are a few instances when employees may have other mandatory payroll deductions, called wage garnishments, which are applied after payroll taxes have been calculated. Garnishments are for back child support payments, delinquent student loans, unpaid taxes, and credit card debt.
If employees have a mandatory wage garnishment, clients will be notified by the government and informed of the amount to be withheld from each paycheck.
What advise should a payroll specialist give to an employer who has employees whose wages are being garnished?
A wage garnishment is technically a legal action against an employer, so advise clients to take care if they have employees whose wages are being garnished. There can be penalties for not responding to a wage garnishment letter or court order in a timely manner.
Gusto withholds the garnishment and displays it on the paystub based on the employee’s normal pay schedule. Payments must be remitted by you or your client, with the exception of child support payments.
How do you determine net pay?
Calculate gross pay Include pre-tax deductions/contributions Determine payroll taxes Apply post-tax deductions Net pay is determined
