Payroll and Taxes Workshop

Name: Cady

Period: 1

Part I: Vocab terms (define each):

Gross Pay - what the employee earns in total before deductions are made
Net Pay - what the employee actually takes home
YTD - year to date
Deductions - amounts of money that the employee does not have to pay income tax on
because it went into mortgage, charity, medical care, etc.
Allowances - deductions the employee can claim for dependents and themselves
Withholdings - amounts of money that the employer holds back from the employee per pay
cheque to pay their taxes
Social Security - amounts of money generated by tax given to the retired peoples in place of
income
Cafeteria plan - A plan maintained by an employer excludable from employees gross income to
receive certain benefits, chosen by the employee such as types of medical care, etc.
Asset - something owned that has economic value - a house, cars, etc.
Capital Gains - money made over the year by the sale of assets
Private contractor - self employed person hired by another to do a task
Based on federal tax brackets, how much tax does someone owe on taxable income of
$309,741? Show your work.
Bracket

Rate

Low

10%

2
3
4
5

High

Total

0.00

9,275.00

15%

9,276.00

37,650.00

4256.1

25%

37,651.00

91,150.00

13374.75

28%

91,151.00

190,150.00

27719.72

33%

190,151.00

413,350.00

73655.67

35%

413,351.00

415,050.00

594.65

39.60%

415,051.00

1,000,000,000.00

395835639.8

(927.5+4256.1+13374.75+27719.72)=46278.07
309741-190151=119,590
309741-119,590=39464.7
46278.07+39464.7=
Tax owed: $85742.77
Take home earnings: $223998.23

Part II: Payroll

Job title: Software Engineer
Hourly wage/salary: $40.00

927.5

Payroll and Taxes Workshop

Name: Cady
Period: 1
Hours per week: 50
Frequency of paychecks: Monthly
Number of paychecks per year: 12
What mandatory withholdings will appear on your paycheck?
Medicare, Social Security, Federal, and State tax
What other payroll deductions would you like taken out of your paycheck?
FSA, IRA contribution
Simulated pay stub:Be sure to account for your number of allowances

Assuming each paycheck is the same, create a W-2 showing end-of-year reporting:

What are the total contributions to your retirement and cafeteria accounts? Remember to
include employer match to an IRA.

Payroll and Taxes Workshop

Name: Cady
IRA - $19200
Cafeteria - $600

Period: 1

Part II: Other Income

Respond to each of these with a complete sentence.
Capital Gains Tax
Identify two assets (house, collectors item, stock, property, gold, patents, jewelry, etc.)
Declare one of them as a short-term gain, the other as a long-term gain.
The short term capital gain is the stock options I gained whilst working at a startup, and the long
term gain is stocks I had for over two years.
1099 income
Create a source of 1099 income for yourself, including source and dollar amount. This is
your schedule C total.
Earlier this year I did some freelance coding for an internet startup, Orange, at a flat rate of
$5,000.
Itemized deductions
List at least three itemized deductions, including dollar amount. This is your Schedule A
total.
I gave a donation of $1,000 to the charity Reach out and Read, my mortgage interest was
$12,000, and I took an advanced online coding course from MIT that was $500 to further myself
in my field.

Payroll and Taxes Workshop

Name: Cady

Period: 1

Part III: Filing form 1040

Complete a paper copy of tax form 1040. Scan it in or turn in the paper copy.
What was the effective tax rate for your simulation?
19.26%

Payroll and Taxes Workshop

Name: Cady

Period: 1

Part IV: Analysis

What is the difference between a tax deduction and a tax credit?
A tax deduction reduces the amount of income you have to pay tax on before your tax liability is
calculated, but a credit acts like a gift certificate in which it reduces the tax that you have to
actually pay.
How much money can you make as an independent adult and not pay income tax?
As a person filing independently, you are entitled to a standard deduction of $6300, and $4000
from one exemption (yourself), which adds up to $10,300. However, it also depends what is
deductible (charity, education, etc.).
How does the number of W-4 allowances affect payroll and your tax return?
Allowances act as a budget for how much the employer holds back to pay tax at the end of the
year.
Vanessa has built a new company and her stock shares are now valued $1.2 million.
Does she pay tax on that growth?
Only when she sells it will she have to pay tax on the gain she made.
It it ever beneficial to make less money and move into a lower tax bracket?
No.
What is something else you learned from this project?
Filing taxes is one of the most perplexing, time consuming, and over-complicated activities I
have ever done - and I do 24 hour Harry Potter marathons for fun. This system is appears so
complex that one would need a high level of education (or the money to hire someone with a
high level of education) to navigate and manipulate it in their favour, sparking a controversial
debate within the United States regarding this rigged system.