The maximum amount of social security tax that could

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Unformatted text preview: example, Lisa Gus earns $93,000 per year as a manager at a CPA firm. She has $6,928.50 in FICA taxes withheld from her earnings: Social security tax Medicare tax Total withheld Earnings Subject to Tax $90,000 93,000 Tax Rate .062 .0145 Tax $5,580.00 1,348.50 $6,928.50 State and Local Income Taxes Most states and some cities tax the earnings of the people who live or work within their boundaries. Sometimes the withholdings are a percentage of gross earnings, like social security taxes. Amounts to be deducted also can be determined by tables similar to the ones for federal income tax. Voluntary Deductions What Deductions Can an Employee Choose? AS YOU READ Compare and Contrast Deductions What are the similarities between legally required deductions and voluntary deductions? What are the differences? 318 Most employers agree to deduct other amounts from their employees’ payroll check at the request of the employees. These deductions are withheld from each payroll check until the employee notifies the employer to stop. Voluntary employee deductions include union dues, health insurance payments, life insurance payments, pension and other retirement contributions, credit union deposits and payments, U.S. savings bonds, and charitable contributions. The 401(k) plan is a popular voluntary payroll deduction. The employee does not pay income tax on earnings contributed to the 401(k) plan until the money is withdrawn from the plan, usually after age 59½. In other words, taxable income is reduced by the amount of the contribution. Some employers make matching contributions to employees’ 401(k) accounts. Angelo Cappelli, a graphic artist, earns $644 each week and contributes $75 to his 401(k) account. Angelo will pay income tax on $569 ($644 $75). He will not pay income tax on his $75 contribution until he withdraws it from his 401(k) account. Chapter 12 Payroll Accounting 308-337_CH12_868829.indd 318 9/15/05 11:45:33 AM SECTION 2 AFTER YOU Assessment READ Reinforce the Main Idea Use an organizer like this one to list one major advantage...
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This note was uploaded on 01/16/2014 for the course BUSINESS Accounting taught by Professor Dr.stevenhall during the Fall '13 term at Del Mar College.

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