Business Math 10 - Payroll (An Introduction)
Jeff Walker makes $1,200 per week.

Business Math 10 - Payroll (An Introduction)

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Soon many of you will start to get a part-time job in the “real” working world. For your first job that you are hired on to, you are told that the job pays you $150.00 a week for 20 hours of work. You think - hey that is great! I’m going to be rich! Then you get your first paycheck and wonder what on earth happened to your $150.00. What you are about to learn is the world of the “payroll” and/or “paycheck.”

Learning about payroll can help you in two ways. First, it will help you to understand your own paycheck and second, if you are ever responsible for the payroll in a company, it will help you to know how to keep track of the payroll records.

Looking above, we determined that your weekly pay would be $150.00 for working a 20 hour work week. That breaks down to about $7.50 per hour. You must learn that in reality, you never actually get $150.00. NO, NO - Uncle Sam wants a piece of that money and so does your State government (including the schools, police department, fire department, crossing guards, etc. - sometimes the list seems almost endless). You have to, therefore, pay the U.S. Government and your State government. But these are not the only things you need to pay. In some cases you will need to pay for medical insurance. You may also have a deduction taken out of your pay for retirement (a look into the future when you will be able to retire from work - you will get this money back sometime between the ages of about 67 years and 75 years of age - depending on your plan). So, you think you are being paid $150.00 a week and then comes your paycheck and you see it’s for a total of $110.78 (sometimes a little less, sometimes a little more).

The amount of money that the government (both federal and state) takes from your paycheck depends on a number of factors. These include (1) how much money do you make; (2) are you single or married; (3) if you are married, how many dependents do you have (dependents include your spouse, children and even parents if they are living with you); how much money is being taken out for retirement purposes or transportation purposes, medical insurance, etc. The federal government takes money from you for three categories. These include your “federal tax”, your “social security tax”, and your “Medicare” tax. (Medicare is the government’s health system for people when they retire - you will not see this money come back to you once you retire (sometime in your 60s), you will receive some government medical insurance coverage - called Medicare). The amount (or percentage) that is taken out changes each year so what is taken out in 2014 will be different from what was taken out in 2013 and what will be taken out in 2015 will be different from what was taken out in 2014. Are you a little confused now? Okay, let’s try breaking it down in a sample payroll problem but first...

One very IMPORTANT thing to note is that the government DOES NOT TAX monies you put aside for retirement or for medical insurance. You’ll see how this works later on.

For this quiz, the Social Security Tax is 6.2% and the Medicare Tax is 1.45%. And although the federal tax changes in percentage the more you make, for this quiz, everyone will be taxed at 10%.

Practice Payroll Problem

Mary Jones is a “single” woman and she is earning $325.00 a week (also known as her gross pay). She pays $10.00 per week for health insurance and $6.50 per week to 401K (retirement). Her state income tax is 5.75%. After paying all of her payroll deductions, how much money will Mary take home each week?

Working the Problem:
$325.00 per week
$325.00 - $10.00 (health insurance premium) = $315.00
$315.00 - $6.50 (401K retirement deduction) = $308.50
$308.50 x .1 (federal tax) = $30.85
$308.50 x .0575 (state tax) = $17.73875 (rounded to $17.74)
$308.50 x .062 (social security tax) = $19.127 (rounded to $19.13)
$308.50 x .0145 (Medicare tax) = $4.47325 (rounded to $4.47)
$308.50 - $30.85 (federal tax) = $277.65
$277.65 - $17.74 (state tax) = $259.91
$259.91 - $19.13 (social security tax) = $240.78
$240.78 - $4.47 (Medicare tax) = $236.31

Solution: Mary’s take home pay each week is $236.31

Notice that we deducted the amounts for health insurance and retirement from Mary’s gross pay first as these deduction amounts are not taxed by the government. As Mary’s gross pay is $325.00 and she takes home $236.31 (known as her net pay), $325.00 - $236.31 = $88.69. Mary has $88.69 deducted from her pay each week for payroll expenses/taxes.

Okay, now that we’ve broken down how payroll works, let’s see how well you can do in determining the take home pay of the next ten individuals. Take your time to work the problems. Rushing will cause you to make errors. Round off any cents.

1.
Janet Greyson makes $900 per week. She pays $76.00 each week for medical coverage for herself. She puts in 4.5% of her weekly pay to her 401K retirement plan and her state income tax is 5.9%. How much money will she bring home each week in her paycheck?
$598.98
$589.98
$589.89
$598.89
Working the Problem:
$900.00 per week
$900.00 - $76.00 (health insurance premium) = $824.00
$900.00 x .045 = $40.50 (401K retirement deduction)
$824.00 - $40.50 = $783.50
$783.50 x .1 (federal tax) = $78.35
$783.50 x .059 (state tax) = $46.2265 (rounded to $46.23)
$783.50 x .062 (social security tax) = $48.577 (rounded to $48.58)
$783.50 x .0145 (Medicare tax) = $11.36075 (rounded to $11.36)
$783.50 - $78.35 (federal tax) = $705.15
$705.15 - $46.23 (state tax) = $658.92
$658.92 - $48.58 (social security tax) = $610.34
$610.34 - $11.36 (Medicare tax) = $598.98
Solution: Janet’s take home pay each week is $598.98
Answer (a) is the correct answer
2.
Justin Moore makes $515 per week. He pays $37.50 each week for medical coverage. He puts in 3% of his weekly pay to his 401K retirement plan. His state’s income tax is 6.25%. How much money will he bring home each week in his paycheck?
$316.51
$311.56
$315.16
$351.61
Working the Problem:
$515.00 per week
$515.00 - $37.50 (health insurance premium) = $477.50
$515.00 x .03 = $15.45 (401K retirement deduction)
$477.50 - $15.45 = $462.05
$462.05 x .1 (federal tax) = $46.205 (rounded to $46.21)
$462.05 x .0625 (state tax) = $28.878125 (rounded to $28.88)
$462.05 x .062 (social security tax) = $28.6471 (rounded to $28.65)
$462.05 x .0145 (Medicare tax) = $6.699725 (rounded to $6.70)
$462.05 - $46.21 (federal tax) = $415.84
$415.84 - $28.88 (state tax) = $386.96
$386.96 - $28.65 (social security tax) = $358.31
$358.31 - $6.70 (Medicare tax) = $351.61
Solution: Justin’s take home pay each week is $351.61
Answer (d) is the correct answer
3.
Billy Waxston makes $475 per week. He pays $25.35 each week for medical coverage. He puts in 2.5% of his weekly pay to his 401K retirement plan and his state income tax is 5.85%. How much money will he bring home each week in his paycheck?
$433.98
$334.89
$343.89
$398.43
Working the Problem:
$475.00 per week
$475.00 - $25.35 (health insurance premium) = $449.65
$475.00 x .025 = $11.875 (rounded to $11.88) (401K retirement deduction)
$449.65 - $11.88 = $437.77
$437.77 x .1 (federal tax) = $43.777 (rounded to $43.78)
$437.77 x .0585 (state tax) = $25.609545 (rounded to $25.61)
$437.77 x .062 (social security tax) = $27.14174 (rounded to $27.14)
$437.77 x .0145 (Medicare tax) = $6.347665 (rounded to $6.35)
$437.77 - $43.78 (federal tax) = $393.99
$393.99 - $25.61 (state tax) = $368.38
$368.38 - $27.14 (social security tax) = $341.24
$341.24 - $6.35 (Medicare tax) = $334.89
Solution: Billy’s take home pay each week is $334.89
Answer (b) is the correct answer
4.
Lynette Tillson makes $4,250.00 monthly. She pays $645.00 each pay period for medical coverage. She puts in 7.5% of her pay to her 401K retirement plan and her state income tax is 8.15%. How much money will she bring home in her paycheck?
$2,438.39
$2,483.39
$2,843,93
$2,834.93
Working the Problem:
$4,250.00 monthly
$4,250.00 - $645.00 (health insurance premium) = $3,605.00
$4,250.00 x .075 = $318.75 (401K retirement deduction)
$3,605.00 - $318.75 = $3,286.25
$3,286.25 x .1 (federal tax) = $328.625 (rounded to $328.63)
$3,286.25 x .0815 (state tax) = $267.82937 (rounded to $267.83)
$3,286.25 x .062 (social security tax) = $203.7475 (rounded to $203.75)
$3,286.25 x .0145 (Medicare tax) = $47.650625 (rounded to $47.65)
$3,286.25 - $328.63 (federal tax) = $2,957.62
$2,957.62 - $267.83 (state tax) = $2,689.79
$2,689.79 - $203.75 (social security tax) = $2,486.04
$2,486.04 - $47.65 (Medicare tax) = $2,438.39
Solution: Lynette’s take home pay each month is $2,438.39
Answer (a) is the correct answer
5.
Alice Fremont makes $825 per week. She pays $48.75 each week for medical coverage. She puts in 4% of her weekly pay to her 401K retirement plan and her state income tax is 7%. How much money will she bring home each week in her paycheck?
$560.03
$506.30
$605.03
$650.30
Working the Problem:
$825.00 per week
$825.00 - $48.75 (health insurance premium) = $776.25
$825.00 x .04 = $33.00 (401K retirement deduction)
$776.25 - $33.00 = $743.25
$743.25 x .1 (federal tax) = $74.325 (rounded to $74.33)
$743.25 x .07 (state tax) = $52.0275 (rounded to $52.03)
$743.25 x .062 (social security tax) = $46.0815 (rounded to $46.08)
$743.25 x .0145 (Medicare tax) = $10.777125 (rounded to $10.78)
$743.25 - $74.33 (federal tax) = $668.92
$668.92 - $52.03 (state tax) = $616.89
$616.89 - $46.08 (social security tax) = $570.81
$570.81 - $10.78 (Medicare tax) = $560.03
Solution:: Alice’s take home pay each week is $560.03
Answer (a) is the correct answer
6.
Mark Walker makes $790 per week. He pays $63.00 each week for medical coverage. He puts in 3% of his weekly pay to his 401K retirement plan and his state income tax is 6.35%. How much money will he bring home each week in his paycheck?
$543.15
$534.51
$453.51
$435.15
Working the Problem:
$790.00 per week
$790.00 - $63.00 (health insurance premium) = $727.00
$790.00 x .03 = $23.70 (401K retirement deduction)
$727.00 - $23.70 = $703.30
$703.30 x .1 (federal tax) = $70.33
$703.30 x .0635 (state tax) = $44.65955 (rounded to $44.66)
$703.30 x .062 (social security tax) = $43.6046 (rounded to $43.60)
$703.30 x .0145 (Medicare tax) = $10.19785 (rounded to $10.20)
$703.30 - $70.33 (federal tax) = $632.97
$632.97 - $44.66 (state tax) = $588.31
$588.31 - $43.60 (social security tax) = $544.71
$544.71 - $10.20 (Medicare tax) = $534.51
Solution: Mark’s take home pay each week is $534.51
Answer (b) is the correct answer
7.
Jeff Walker makes $1,200 per week. He pays $52.00 each week for medical coverage. He puts in 6% of his weekly pay to his 401K retirement plan. His state income tax is 8%. How much money will he bring home each week in his paycheck?
$980.01
$900.01
$800.01
$890.01
Working the Problem:
$1,200.00 per week
$1,200.00 - $52.00 (health insurance premium) = $1,148.00
$1,200.00 x .06 = $72.00 (401K retirement deduction)
$1,148.00 - $72.00 = $1,076.00
$1,076.00 x .1 (federal tax) = $107.60
$1,076.00 x .08 (state tax) = $86.08
$1,076.00 x .062 (social security tax) = $66.712 (rounded to $66.71)
$1,076.00 x .0145 (Medicare tax) = $15.602 (rounded to $15.60)
$1,076.00 - $107.60 (federal tax) = $968.40
$968.40 - $86.08 (state tax) = $882.32
$882.32 - $66.71 (social security tax) = $815.61
$815.61 - $15.60 (Medicare tax) = $800.01
Solution: Jeff’s take home pay each week is $800.01
Answer (c) is the correct answer
8.
Zack Owen makes $2,600.00 bi-monthly. He pays $241.50 each pay period for medical coverage. He puts in 3.8% of his pay to his 401K retirement plan and his state income tax is 7.5%. How much money will he bring home in his paycheck?
$1,619.83
$1,916.83
$1,691.38
$1.961.38
Working the Problem:
$2,600.00 bi-monthly
$2,600.00 - $241.50 (health insurance premium) = $2,358.50
$2,600.00 x .038 = $98.80 (401K retirement deduction)
$2,358.50 - $98.80 = $2,259.70
$2,259.70 x .1 (federal tax) = $225.97
$2,259.70 x .075 (state tax) = $169.4775 (rounded to $169.48)
$2,259.70 x .062 (social security tax) = $140.1014 (rounded to $140.10)
$2,259.70 x .0145 (Medicare tax) = $32.76565 (rounded to $32.77)
$2,259.70 - $225.97 (federal tax) = $2,033.73
$2,033.73 - $169.48 (state tax) = $1,864.25
$1,864.25 - $140.10 (social security tax) = $1,724.15
$1,724.15 - $32.77 (Medicare tax) = $1,691.38
Solution: Zack’s take home pay each pay period is $1,691.38
Answer (c) is the correct answer
9.
Stacy Warren makes $2,150.00 bi-monthly. She pays $307.75 each pay period for medical coverage. She puts in 1.5% of her pay to her 401K retirement plan and her state income tax is 8.32%. How much money will she bring home in her paycheck?
$1,393.04
$1,339.94
$1,933.49
$1,393.49
Working the Problem:
$2,150.00 bi-monthly
$2,150.00 - $307.75 (health insurance premium) = $1,842.25
$2,150.00 x .015 = $32.25 (401K retirement deduction)
$1,842.25 - $32.25 = $1,810.00
$1,810.00 x .1 (federal tax) = $181.00
$1,810.00 x .0832 (state tax) = $150.592 (rounded to $150.59)
$1,810.00 x .062 (social security tax) = $112.22
$1,810.00 x .0145 (Medicare tax) = $26.245 (rounded to $26.25)
$1,810.00 - $181.00 (federal tax) = $1,629.00
$1,629.00 - $150.59 (state tax) = $1,478.41
$1,478.41 - $112.22 (social security tax) = $1,366.19
$1,366.19 - $26.25 (Medicare tax) = $1,339.94
Solution: Stacy’s take home pay each pay period is $1,339.94
Answer (b) is the correct answer
10.
Walter Evans makes $942 per week. He pays $86.25 each week for medical coverage. He puts in 3.2% of his weekly pay to his 401K retirement plan and his state income tax is 8.25%. How much money will he bring home each week in his paycheck?
$618.17
$671.81
$617.18
$611.78
Working the Problem:
$942.00 per week
$942.00 - $86.25 (health insurance premium) = $855.75
$942.00 x .032 = $30.144 (rounded to $30.14) (401K retirement deduction)
$855.75 - $30.14 = $825.61
$825.61 x .1 (federal tax) = $82.561 (rounded to $82.56)
$825.61 x .0825 (state tax) = $68.112825 (rounded to $68.11)
$825.61 x .062 (social security tax) = $51.18782 (rounded to $51.19)
$825.61 x .0145 (Medicare tax) = $11.971345 (rounded to $11.97)
$825.61 - $82.56 (federal tax) = $743.05
$743.05 - $68.11 (state tax) = $674.94
$674.94 - $51.19 (social security tax) = $623.75
$623.75 - $11.97 (Medicare tax) = $611.78
Solution: Walter’s take home pay each week is $611.78
Answer (d) is the correct answer
Author:  Christine G. Broome

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