Calculations

So far, you have learned what taxes and other deductions are. You have also learned why they were subtracted from your paycheck. But, how do you know your employer took out the right amount?

In this lesson, you will learn how to calculate the correct tax amount.

Activities

The basic calculation for net pay is:

Gross Pay - taxes - other deductions = Net Pay

Before your group can figure out net pay, you must first calculate:
Gross Pay
Federal Income Tax
State Income Tax
Social Security Tax
Medicare Tax

Gross Pay
Use either the Simply Hired or Indeed websites to look up the annual salary for your hypothetical employee's profession. Assume that your employee lives and works in the Atlanta, GA area.

Your employee is paid on a biweekly basis, which means they are paid 26 times a year. Use this formula to calculation your employee's earnings for 1 pay period:

Annual gross pay / 26 pay periods = gross pay for 1 pay period

Example: $26,000 annual salary / 26 pay periods = $1000.00 gross pay for 1 pay period

Check your work with this online payroll calculator. (Select "annual" option for the pay period.)

Federal Income Tax
Use your group's completed W-4 and IRS Publication 15(Circular E) to calculate your employee's Federal income tax. Use the Wage Bracket Method on pages 41-60. This chart is organized by marital status, number of exemptions and pay frequency.

Georgia Income Tax
Georgia's state income tax is a percentage of the employee's gross pay. Use this chart to find out which percentage applies to your group's employee.

Social Security and Medicare Taxes
Go back to the IRS tutorial to review how to calculate Social Security and Medicare taxes. Assume that your employee has not yet reached the Social Security wage limit.

Putting It All Together
You now have all the tax amounts needed to calculate your employee's net pay. Create a sample paycheck stub for employee to show your calculation. Use this payroll calculator to check your work.

Create a group presentation to teach your peers about calculating net pay.

Group Project Rubric: http://rubistar.4teachers.org/index.php?screen=PrintRubric&rubric_id=1953073&

Follow The Money Trail

Look up a typical annual salary for your dream profession in the Atlanta, GA area. Create a sample biweekly paycheck for yourself.

Based on the net pay in your sample paycheck, create a reflective piece describing the lifestyle you would be able to afford.

Individual Project Rubric: http://rubistar.4teachers.org/index.php?screen=PrintRubric&rubric_id=1953100&