Finance Unit
1.7 Paying Taxes
Scenario 1:
In 2018 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 2018. ____________________
$4,590
Gross Income (Wages + Interest): ____________________
$60,700
Adjusted Gross Income (Wages + Interest – Tax-deferred contributions): ____________________
$58,200
Amount of Standard Deduction: ____________________
$12,000
Taxable Income (Adjusted Gross Income – Standard Deduction): ____________________
$46,200
Amount of Federal Taxes owed: _____________________
$6,103.50
| Tax Rate | Single | Amount of income to be taxed in this range |
Taxes owed on this part of income |
|---|---|---|---|
| 10% | $0 to $9,525 | $9,525 |
$952.50 |
| 12% | $9526 to $38,700 | $29,175 |
$3,501.00 |
| 22% | $38,701 to $82,500 upper number is changed to $46,200 |
$7,500 |
$1,650.00 |
| 24% | $82,501 to $157,500 | ||
| 32% | $157,501 to $200,000 | ||
| 35% | $200,001 to $500,000 | ||
| 37% | Over $500,000 | ||
| Total | $6,103.50 |
||
| Standard Deduction |
$12,000 |
Scenario 2:
In 2018 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 2018. ____________________
$9,180
Gross Income (Wages + Interest): ____________________
$121,400
Adjusted Gross Income (Wages + Interest – Tax-deferred contributions): ____________________
$116,400
Amount of Standard Deduction: ____________________
$12,000
Taxable Income (Adjusted Gross Income – Standard Deduction): ____________________
$104,400
Amount of Federal Taxes owed: _____________________
$19,345.50
| Tax Rate | Single | Amount of income to be taxed in this range |
Taxes owed on this part of income |
|---|---|---|---|
| 10% | $0 to $9,525 | $9,525 |
$952.50 |
| 12% | $9526 to $38,700 | $29,175 |
$3,501.00 |
| 22% | $38,701 to $82,500 | $43,800 |
$9636.00 |
| 24% | $82,501 to $157,500 upper number is changed to $104,400 |
$21,900 |
$5,256.00 |
| 32% | $157,501 to $200,000 | ||
| 35% | $200,001 to $500,000 | ||
| 37% | Over $500,000 | ||
| Total | $19,345.50 |
||
| Standard Deduction |
$12,000 |
Scenario 3:
| 2018 FICA Tax Rates | ||
|---|---|---|
| Employee's Rates | Matching Rates Paid by the Employer |
Self-Employed Rates |
| 7.65% on first $128,700 of income |
7.65% on first $128,700 of income |
15.3% on first $128,700 of net earnings |
| 1.45% on income between $128,700 and $200,000 |
1.45% on income between $128,700 and $200,000 |
2.9% on earnings between $128,700 and $200,000 |
| 2.35% on income above $200,000 |
2.35% on income above $200,000 |
2.35% on earnings above $200,000 |
FICA taxes include Social Security and Medicare. The Social Security tax applies to the first $128,700 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?
- Suppose Dylan has $35,000 of income from work and is not self-employed. How much will Dylan have to pay in FICA taxes?
- Suppose Alysa has $130,000 of net earnings from work and is self-employed. How much will Alysa have to pay in FICA taxes?
\(\begin{equation} . 0765(128,700)= \$ 9,845.55 \end{equation} \)
\(\begin{equation} .0145(21,350)=\$309.58 \end{equation} \)
\( \begin{equation} \$ 9,845.55 + \$ 309.58 = \$ 10,155.13 \end{equation} \)
\(\begin{equation} .0765(35,000)=\$ 2,677.50 \end{equation} \)
\(\begin{equation} .153(128,700)=\$19,691.10 \end{equation} \)
\(\begin{equation} .029(1300)=\$37.70 \end{equation} \)
\( \begin{equation} \$ 19,691.10 + \$ 37.70 = \$ 19,728.80 \end{equation} \)
Scenario 4:
In 2018 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 2018. ____________________
$1,109.25
Adjusted Gross Income (Wages + Interest – Tax-deferred contributions): ____________________
$14,500
Amount of Standard Deduction: ____________________
$12,000
Taxable Income (Adjusted Gross Income – Standard Deduction): ____________________
$2,500
Amount of Federal Taxes owed: _____________________
$250
| Tax Rate | Single | Amount of income to be taxed in this range |
Taxes owed on this part of income |
|---|---|---|---|
| 10% | $0 to $9,525 upper number is changed to $2,500 |
$2,500 |
$250 |
| 12% | $9526 to $38,700 | ||
| 22% | $38,701 to $82,500 | ||
| 24% | $82,501 to $157,500 | ||
| 32% | $157,501 to $200,000 | ||
| 35% | $200,001 to $500,000 | ||
| 37% | Over $500,000 | ||
| Total | $250 |
||
| Standard Deduction |
$12,000 |
Scenario 5:
In 2018 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 2018. ____________________
$6,502.50
Adjusted Gross Income (Wages + Interest – Tax-deferred contributions): ____________________
$85,000
Amount of Standard Deduction: ____________________
$24,000
Taxable Income (Adjusted Gross Income – Standard Deduction): ____________________
$61,000
Taxes owed from table below: _____________________
$6,939.00
Amount of Child Credit: _____________________
$4000
Amount of Federal Taxes owed (Calculated from table – Child credit): _______________________
$2,939.00
| Tax Rate | Married | Amount of income to be taxed in this range |
Taxes owed on this part of income |
|---|---|---|---|
| 10% | $0 to $19,050 | $19,050 |
$1,905 |
| 12% | $19,051 to $77,400 upper number is changed to $61,000 |
$41,950 |
$5,035 |
| 22% | $77,401 to $165,000 | ||
| 24% | $165,001 to $315,000 | ||
| 32% | $315,001 to $400,000 | ||
| 35% | $400,001 to $600,000 | ||
| 37% | Over $600,000 | ||
| Total | $6,939.00 |
||
| Standard Deduction |
$24,000 | ||
| Child Credit | $2,000 per child |