Math 1010

Finance Unit

1.11 Paying Taxes

Scenario 1:

In 2021 you earned $60,000 at your job. Your investments earned you $700 in interest for the year. You paid $2500 into a tax-deferred retirement account.

Wages: _____________________ $60,000

You must pay 7.65% of your wages for Social Security and Medicare taxes. Calculate your Social Security/Medicare taxes for 2021. ____________________ $4,590

Gross Income (Wages + Interest): ____________________ $60,700

Adjusted Gross Income $(\text{Wages} + \text{Interest} - \text{Tax deferred contributions})$: ____________________ $58,200

Amount of Standard Deduction: ____________________ $12,550

Taxable Income $(\text{Adjusted Gross Income} - \text{Standard Deduction})$: ____________________ $45,650

Amount of Federal Taxes owed: _____________________ $5,791.50

Tax Rate	Single	Amount of income to be taxed in this range	Taxes owed on this part of income
10%	$0 to $9,950	$9,950	$995
12%	$9,951 to $40,525	$30,575	$3,669
22%	$40,526 to $86,375 upper number is changed to $45,650	$5,125	$1,127.50
24%	$86,376 to $164,925
32%	$164,926 to $209,425
35%	$209,426 to $523,600
37%	Over $523,600
Total			$5,791.50
Standard Deduction	$12,550

Scenario 2:

In 2021 you earned $120,000 at your job. Your investments earned you $1400 in interest for the year. You paid $5000 into a tax-deferred retirement account.

Wages: ___________________ $120,000

You must pay 7.65% of your wages for Social Security and Medicare taxes. Calculate your Social Security/Medicare taxes for 2021. ____________________ $9,180

Gross Income (Wages + Interest): ____________________ $121,400

Adjusted Gross Income $(\text{Wages} + \text{Interest} - \text{Tax deferred contributions})$: ____________________ $116,400

Amount of Standard Deduction: ____________________ $12,550

Taxable Income $(\text{Adjusted Gross Income} - \text{Standard Deduction})$: ____________________ $103,850

Amount of Federal Taxes owed: _____________________ $18,945

Tax Rate	Single	Amount of income to be taxed in this range	Taxes owed on this part of income
10%	$0 to $9,950	$9,950	$995
12%	$9,951 to $40,525	$30,575	$3,669
22%	$40,526 to $86,375	$45,850	$10,087
24%	$86,376 to $164,925 upper number is changed to $103,850	$17,475	$4,194
32%	$164,926 to $209,425
35%	$209,426 to $523,600
37%	Over $523,600
Total			$18,945
Standard Deduction	$12,550

Scenario 3:

2021 FICA Tax Rates

Employee's Rates	Matching Rates Paid by the Employer	Self-Employed Rates
7.65% on first $142,800 of income	7.65% on first $142,800 of income	15.3% on first $142,800 of net earnings
1.45% on income between $142,800 and $200,000	1.45% on income between $142,800 and $200,000	2.9% on income between $142,800 and $200,000
2.35% on income above $200,000	2.35% on income above $200,000	3.8% on earnings above $200,000

FICA taxes include Social Security and Medicare. The Social Security tax applies to the first $142,800 of income, while the Medicare tax applies to all income.

Suppose Tyler has $150,050 of income from work and is not self-employed. How much will Tyler have to pay in FICA taxes?

$\begin{equation} .0765(142,800)= \$10,924.20 \end{equation} $

$\begin{equation} .0145(7250)=\$105.13 \end{equation} $

$ \begin{equation} \$ 10,924.20 + \$ 105.13 = \$ 11,029.33 \end{equation} $

Suppose Dylan has $35,000 of income from work and is not self-employed. How much will Dylan have to pay in FICA taxes?

$\begin{equation} .0765(35000)=\$ 2677.50 \end{equation} $

Suppose Alysa has $170,000 of net earnings from work and is self-employed. How much will Alysa have to pay in FICA taxes?

$\begin{equation} .153(142,800)=\$21,848.40 \end{equation} $

$\begin{equation} .029(27,200)=\$788.80 \end{equation} $

$ \begin{equation} \$ 21,848.40 + \$ 788.80 = \$ 22,637.20 \end{equation} $

Scenario 4:

In 2021 you earned minimum wage $7.25 per hour. You worked 40 hours a week for 50 weeks. You did not earn any interest, nor did you have any tax-deferred contributions.

Wages: ____________________ $14,500

You must pay 7.65% of your wages for Social Security and Medicare taxes. Calculate your Social Security/Medicare taxes for 2021. ____________________

$1,109.25

Adjusted Gross Income $(\text{Wages} + \text{Interest} - \text{Tax deferred contributions})$: ____________________ $14,500

Amount of Standard Deduction: ____________________ $12,550

Taxable Income $(\text{Adjusted Gross Income} - \text{Standard Deduction})$: ____________________ $1,950

Amount of Federal Taxes owed: _____________________ $195

Tax Rate	Single	Amount of income to be taxed in this range	Taxes owed on this part of income
10%	$0 to $9,950 upper number is changed to $1,950	$1,950	$195
12%	$9,951 to $40,525
22%	$40,526 to $86,375
24%	$86,376 to $164,925
32%	$164,926 to $209,425
35%	$209,426 to $523,600
37%	Over $523,600
Total			$195
Standard Deduction	$12,550

Scenario 5:

In 2021 you earned $40,000 at your job. Your spouse earned $45,000. You have two children. You did not earn any interest, nor did you have any tax-deferred contributions.

Wages: ____________________ $85,000

You must pay 7.65% of your wages for Social Security and Medicare taxes. Calculate your Social Security/Medicare taxes for 2021. ____________________ $6,502.50

Adjusted Gross Income $(\text{Wages} + \text{Interest} - \text{Tax deferred contributions})$: ____________________ $85,000

Amount of Standard Deduction: ____________________ $25,100

Taxable Income $(\text{Adjusted Gross Income} - \text{Standard Deduction})$: ____________________ $59,900

Taxes owed from table below: _____________________ $6,790

Amount of Child Credit: _____________________ $6000

Amount of Federal Taxes owed (Calculated from table – Child credit): _______________________ $790

Tax Rate	Married Filing Jointly	Amount of income to be taxed in this range	Taxes owed on this part of income
10%	$0 to $19,900	$19,900	$1,990
12%	$19,901 to $81,050 upper number is changed to $59,900	$40,000	$4,800
22%	$81,051 to $172,750
24%	$172,751 to $329,850
32%	$329,851 to $418,850
35%	$418,851 to $628,300
37%	Over $628,300
Total			$6,790
Standard Deduction	$25,100
Child Credit	$3000 per child