Me, Myself, My Money
Instructor’s Guide
Who’s FICA, and
How Come He Gets
Part of My Paycheck?
Learning Standards
(grades 9-12):
■ Business and Economics
• Students calculate deductions,
including federal and state income
tax, Social Security tax, and
Medicare tax. (National Business
Education Association – Accounting)
• Students identify legislation that
guarantees worker benefits.
(National Business Education
Association – Business Law)
• Students explain taxes, and
calculate personal tax liabilities.
(National Business Education
Association – Economics &
Personal Finance)
■ Mathematics
• Students select and apply
appropriate procedures for
computation from among mental
math, estimation, paper and
pencil, and technology in
real-world problem situations.
• Students understand how
mathematical ideas interconnect
and build on one another to
produce a coherent whole, and
recognize and apply mathematics
in contexts outside of mathematics.
(National Council of Teachers of
Mathematics)
8217 - WVSCPA.indd 1
Learning Objectives
Students will:
system.
■ Explain a progressive tax system.
■ Identify
and
explain
the
withholding
Identify and explain the withholding of
of federal
federal income
income tax,
tax, state
state income tax,
Social
incomeSecurity
tax, Social
tax, andtax.
Medicare tax.
tax,Security
and Medicare
■ Explain
Explain the
the meaning
meaning of
of deductions,
deductions, exemptions,
exemptions, and
and allowances,
allowances,
and
and the
purpose
of
Form
W-4.
the purpose of Form W-4.
■ Explain the meaning and purpose of Form W-2.
Explain the meaning and purpose of Form W-2.
 Identify the forms used to complete a federal income tax return and
■ Identify the forms used to complete a federal income tax return and
West Virginia state income tax return.
Connecticut state income tax return.
 Calculate federal income tax, state income tax, Social Security tax,
■
federal
state income
tax, Social
Security
tax, and
Calculate
and Medicare
tax income
withheld,tax,
exemption
amounts,
itemized
deductions,
Medicare
tax
withheld,
exemption
amounts,
itemized
deductions,
and federal and state income tax due.
and federal and state income tax due.
Presentation Suggestions
Facts” and
and “Alphabet
“Alphabet Soup”
Soup” to:
to:
Use “Fast Facts”
■
 Discuss the United States’ progressive
progressive tax
tax system
system ––the
themore
moreyou
youearn,
earn, the more
the
– and how
illustrate
are calculated
this system.
you more
pay! –you
andpay!
illustrate
taxeshow
aretaxes
calculated
using thisusing
system.
■ Identify
Identify and
and explain
explain the
the taxes
taxes deducted
deducted from
from paychecks:
paychecks:federal
federalincome
incometaxes,
taxes,state
stateincome
incometaxes,
Social
Security
taxes,
and
Medicare
taxes,
noting
that
individuals
are
subject
to
both
federal
taxes, Social Security taxes, and Medicare taxes, noting that individuals are subject to both and
state income
taxesincome
in West
Virginia.
federal
and state
taxes
in Connecticut.
■ Explain that federal income
income taxes
taxes and
and state
state income
incometaxes
taxesare
arededucted
deductedas
asaameans
meanstotopre-pay
pre-pay
taxes, or
or “pay
“pay as
as you
taxes,
you go,”
go,” and
and that
that the
the purpose
purpose of
of filing
filing an
an income
income tax
taxreturn
returnon
onApril
April15th
15th isis to
to
determine if additional taxes are required to be paid
paid or
or ifif taxes
taxes paid
paid during
duringthe
theyear
yearare
areininexcess
excess
of the amount
owed
and aisrefund
is in order.
of the amount
owed and
a refund
in order.
■
of Social
Social Security
Security tax
tax and
andMedicare
Medicaretax
taxand
andthe
theamount
amountdeducted
deductedfor
foreach
each
 Explain the purpose of
(6.2%
and
1.45%),
noting
that
Social
Security
tax
has
an
income
limit
while
Medicare
does
not.
(6.2% and 1.45%), noting that Social Security tax has an income limit while Medicare does not.
■ Discuss the purpose of Form W-4 and Form W-2, emphasizing that Form W-4 determines the
 Discuss the purpose of Form W-4 and Form W-2, emphasizing that Form W-4 determines the
amount
tax withheld
withheld each
each pay
pay period
period and
and that
that the
the greater
greater the
thenumber
numberofofexemptions,
exemptions,
amount of
of income
income tax
the
less
tax
withheld.
the less tax withheld.
■ Introduce Form 1040 as the form used by most taxpayers to file a federal income tax return, noting
 Introduce Form 1040 as the form used by most taxpayers to file a federal income tax return,noting
however
that students
studentsmay
mayuse
useshort
shortforms
forms– –Form
Form
1040Aor
Form
1040EZ
– because
most
however that
1040A
or Form
1040EZ
– because
theythey
most
likelylikely
earn less than $50,000 and file as “single” taxpayers, the necessary requirements for using these forms.
earn less than $50,000 and file as “single” taxpayers, the necessary requirements for using these forms.
■ Discuss the standard deduction and the types of itemized deductions, such as interest on a home
 Discuss the standard deduction and the types of itemized deductions, such as interest on a home
mortgage, state income taxes, and medical expenses, that may be deducted by completing Schedule A.
mortgage, state income taxes, and medical expenses, that may be deducted by completing Schedule A.
■ Introduce
Form CT-1040 as the form used by Connecticut residents to file a state income tax return in
 Introduce Form IT-140 as the form used by West Virginia residents to file a state income tax return in West
Connecticut, noting that taxpayers must file both a federal income tax return and a state income tax return.
Virginia, noting
that taxpayers
must Dozen
file both–awith
federal
■ Complete
the activity
– ATaxing
theincome
class. tax return and a state income tax return.
 Complete the activity – A Taxing Dozen – with the class.
7/12/2006 2:10:07 PM
Me, Myself, My Money
Who’s FICA, and How Come
He Gets Part of My Paycheck?
Who’s FICA, and How Come
He Gets
A T axing
DozenPart of My Paycheck?
Me, Instructor’s
Myself, My Guide
Money
Instructor’s Guide
A T axing Dozen
Ray is single and lives in Connecticut. He earned $90,000 during 2004 working for a CPA firm.
1. Determine the amount reported on Ray’s W-2 that was withheld for
Social
and
Medicare.
RayisSecurity
issingle
singleand
and lives
lives in
in Connecticut.
HeHe
earned
$90,000
during
20042004
working
for a CPA
Ray
West Virginia.
earned
$90,000
during
working
for afirm.
CPA firm.
Social Security: $87,900 x 6.2% = $5,449.80
Medicare:
$90,000
x 1.45%
= $1,305
Determinethe
theamount
amount
reported
on
was
withheld
for for
1.1.
Determine
reported
onRay’s
Ray’sW-2
W-2that
that
was
withheld
Social
SocialSecurity
Securityand
andMedicare.
Medicare.
Social
Security:
Social Security:$87,900
$87,900xx6.2%
6.2% == $5,449.80
$5,449.80
Medicare:
$90,000
x
1.45%
=
2. Determine the
amount of
Social xSecurity
and Medicare tax paid by
Medicare:
$90,000
1.45% tax
=$1,305
$1,305
Ray’s employer on his behalf.
Social Security: $87,900 x 6.2% = $5,449.80
2 .Determine the amount of Social Security tax and Medicare tax paid by
x 1.45%
= $1,305
2. Medicare:
Determine$90,000
the amount
of Social
Security tax and Medicare tax paid by
Ray ’s employer on his behalf.
ay’s employer
on his$87,900
behalf. x 6.2% = $5,449.80
RSocial
Security:
Social Security:
= $5,449.80
Medicare:
$90,000$87,900
x 1.45%x =6.2%
$1,305
3. Determine the
number $90,000
of exemptions
Ray
can claim by completing Form W-4,
Medicare:
x 1.45%
= $1,305
and the amount Ray can deduct from his gross income.
3. Determine
the(himself)
number xof$3,100
exemptions
Ray can claim by completing Form W-4,
1 exemption
= $3,100
and the amount Ray can deduct from his gross income.
the number
of exemptions
can claim by completing Form W-4,
3. Determine
1 exemption
(himself)
x $3,100 Ray
= $3,100
and the amount Ray can deduct from his gross income.
4. Based on the
number of exemptions
can=claim,
1 exemption
(himself) x Ray
$3,100
$3,100and the amount he can deduct
from
gross income
in arrivingofatexemptions
taxable income,
amountand
will the
be used
to he can deduct
4. Based
on the number
Ray what
can claim,
amount
determine
the amount
of in
federal
income
taxes toincome,
be withheld?
from gross
income
arriving
at taxable
what amount will be used to
($90,000
- the
$3,100)
= $86,900
4.determine
of
federal income
taxes
to be
withheld?
Based on
theamount
number
of exemptions
Ray can
claim,
and
the amount he can deduct
from
($90,000
- $3,100)
= $86,900
gross income
in arriving
at taxable income, what amount will be used to
determine the amount of federal income taxes to be withheld?
5. Determine the
amount- $3,100)
reported=on
Ray’s W-2 that was withheld for federal income taxes.
($90,000
$86,900
5. Determine
the amount reported
on Ray’s W-2 that was withheld for federal income taxes.
$18,958 (based on taxable income of $86,900)
$18,958 (based on taxable income of $86,900)
5. Determine the amount reported on Ray’s W-2 that was withheld for federal income taxes.
$18,958 (based
on
taxableAmount
income ofTax
$86,900)
From
To
Taxable
Rate
Tax
$–
$7,150
$7,151 $29,050
$29,051From
$70,350 To
$–
$7,150
$70,351 $86,900
$7,151 $29,050
$29,051 $70,350
$70,351 $86,900
$7,150
10%
$715
$21,899
15%
$3,285
Taxable
Amount
Tax
Rate
$41,299
25%
$10,325Tax
$16,549$7,150 28% 10%$4,634 $715
$21,899
15%
$18,958$3,285
$41,299
25%
$10,325
$16,549
28%
$4,634
$18,958
(continued on next page)
(continued on next page)
8217 - WVSCPA.indd 2
7/12/2006 2:10:08 PM
Me,
Myself,
My
Money
Me,
Myself,
My
Money
Me, Myself,
My Money
Instructor’s
Guide
Instructor’s
Guide
Who’s
FICA,
and
How
Come
Who’s
FICA,
and
How
Come
He
Gets
Part
ofof
My
Paycheck?
He
Gets
Part
My
Paycheck?
Who’s
FICA,
and
How
Come
He Gets Part of My Paycheck?
Instructor’s Guide
A TAaxing
Dozen
(continued)
T axing
Dozen
(continued)
A T6.axing
Dozen
If Ray claimed
zero(continued)
exemptions on his W-4 – versus one – what amount would have been reported
6. If Ray claimed zero exemptions on his W-4 – versus one – what amount would have been reported
on his
for federal
income
taxestaxes
withheld?
on W-2
his W-2
for federal
income
withheld?
$19,826
(Based
on
taxable
income
ofW-4
$90,000)
6. If Ray
claimed
zero
exemptions
on
his
versus one – what amount would have been reported
$19,826
(Based
on taxable
of –$90,000)
6. If Ray claimed
zero
exemptions
on hisincome
W-4 – versus
one – what amount would have been reported
on his W-2 for federal income taxes withheld?
to students
that that
“Tax“Tax
Witholding
* Note
to students
Witholding
From
To
Taxable
Amount
Tax
RateRate Tax Tax * Note
on his W-2 for
federal income
taxes
withheld?
From
Totaxable
Taxable
Amount
Tax
$19,826
(Based on
income
of $90,000)
Tables,”
which
are
based
on
income,
filingfiling
Tables,” which are based on income,
$19,826
on taxable income
of $90,000)
$ –(Based
10%10%
$715$715
$ – $7,150
$7,150 $7,150
$7,150
status,
and and
pay pay
period
– weekly,
semi-monthly,
status,
period
–Witholding
weekly,
semi-monthly,
** Note
students
that
Note
totostudents
that
“Tax“Tax
Witholding
Tables,”
$7,151
$21,899
15%
From
To$29,050Taxable
Amount Tax
Rate
Tax$3,285 etc.
–
are
used
to
determine
the
amount
of tax
$7,151$29,050
$21,899
15% $3,285
etc.
–
are
used
to
determine
the
amount
which arewhich
based are
on income,
status, and
Tables,”
based filing
on income,
filing of tax
$29,051
$70,350
$41,299
25%
$10,325
withheld
each
pay
period,
and
that
questions
$–
$7,150
10%25%
$715
$29,051
$70,350 $7,150
$41,299
$10,325 status,
each
pay
and
pay withheld
period
weekly,
semi-monthly,
etc.
–that
are questions
and– pay
period
–period,
weekly,
semi-monthly,
#4,
and
#6 are
intended
illustrate
the fact
$70,351
$90,000
$19,649
28%
$5,502
used#5
determine
amount
oftotax
withheld
$7,151
15%28% $3,285
#4,
#5used
and
#6
are
intended
illustrate
–toare
tothedetermine
theto
amount
of the
tax fact
$70,351$29,050
$90,000 $21,899
$19,649
$5,502 etc.
that
the
greater
the
number
of
exemptions
each
pay
period,
and
that
questions
#4,
#5
and
that
the
greater
the
number
of
exemptions
$19,826
$29,051 $70,350
$41,299
25%
$10,325
withheld each pay period, and that questions
$19,826 claimed,
#6 are intended
to illustrate
the less
tax that
willfact
bethat
withheld.
claimed,
taxthe
that
bethewithheld.
#4,
#5
and
#6the
areless
towill
illustrate
$70,351 $90,000
$19,649
28%
$5,502
greater
the number
ofintended
exemptions
claimed,
thethe fact
that
the
greater
the
number
of
exemptions
less tax that will be withheld.
$19,826
7. Ray
works
in Connecticut,
which
calculates
statestate
income
tax using
grossgross
income.
claimed,
7. Ray
works
in Connecticut,
which
calculates
income
tax using
income.the less tax that will be withheld.
Determine
the amount
reported
on his
W-2
that that
was was
withheld
for Connecticut
state income
taxes.
Determine
the
amount
reported
on
his
W-2
withheld
for
Connecticut
income
taxes.
7. Ray works in West Virginia, which calculates state income tax using grossstate
income
& progressive
tax rates.
$90,000
x
5%
=
$4,500
(see
attached
tax
table)
Calculate
Ray’s
West
Virginia
income
tax, assuming his WV personal exemption
$90,000
x 5%
= $4,500
7. Ray
works
in Connecticut,
which
calculates
state
income
tax state
using gross
income.
Determine
amount is
the$0.
amount reported on his W-2 that was withheld for Connecticut state income taxes.
($90,000 - $0 - $60,000) X 6.5% = $1,950 + $2,775 (tax on $60,000) = $4,725
$90,000
x
5% in
= $4,500
8. If8.Ray
paidpaid
$10,000
interest
on his
mortgage,
whatwhat
amount
couldcould
he deduct
fromfrom
income
by completing
Schedule
A? A?
If Ray
$10,000
in interest
onhome
his home
mortgage,
amount
he deduct
income
by completing
Schedule
$10,000
interest
+in$4,500
state
income
taxmortgage,
=tax
$14,500
8 .If Ray
paid
$10,000
interest
on
his income
home
what amount could he deduct from income by
$10,000
interest
+ $4,500
state
= $14,500
completing Schedule A ?
8. If Ray$10,000
paid $10,000
in interest on his home mortgage, what amount could he deduct from income by completing Schedule A?
interest + $4,725 state income tax = $14,725
$10,000
interest
+ $4,500
state income
tax what
= $14,500
9. If9.Ray
did not
interest
on his
mortgage,
amount
couldcould
he deduct
fromfrom
income?
If Ray
did pay
not pay
interest
on home
his home
mortgage,
what
amount
he deduct
income?
9. If Ray
not payamount
interestforonsingle
his home
mortgage,
what amount could he deduct from income?
Thedid
standard
taxpayers:
$4,850
The standard amount for single taxpayers: $4,850
The standard deduction amount for single taxpayers: $4,850
9. If Ray did not pay interest on his home mortgage, what amount could he deduct from income?
The Ray’s
standard
amount
forassuming
single
taxpayers:
Calculate
Ray’s
taxable
income,
assuming
his$4,850
itemized
deductions
onAtotal
Schedule
A total
$14,725,
1010.
. Calculate
taxable
income,
his itemized
deductions
on Schedule
$14,500,
and and
he
claims
one one
exemption.
1
0
.
Calculate
Ray’s
taxable
income,
assuming
his
itemized
deductions
on Schedule
Atotal
$14,500,
he claims
exemption.
and$90,000
he claims
one
exemption.
salary
- $3,100
exemptions
- $14,500
itemized
deductions
= $72,400
$90,000
salary
$3,100
exemptions
$14,500
itemized
deductions
=
$72,400
$90,000 salary - $3,100 exemptions - $14,725 itemized deductions = $72,175
10. Calculate Ray’s taxable income, assuming his itemized deductions on Schedule Atotal $14,500, and he claims one exemption.
Calculate
Ray’s
federal
income
tax. - $14,500 itemized deductions = $72,400
$90,000
salary
- $3,100
exemptions
11.11.
Calculate
Ray’s
federal
income
tax. tax.
federal
income
11.
Calculate
$14,835 Ray’s
(Based
on taxable
income of $72,175)
$14,898
(Based
on taxable
income
of $72,400)
$14,898
(Based
on taxable
income
of $72,400)
From
To income
Amount
RateRate Tax Tax
11. Calculate
Ray’s
tax.
Fromfederal
To Taxable
Taxable
AmountTax Tax
$14,898
on taxable income
of $72,400)10%
$ –(Based
$7,150
$ – $7,150
$7,150
$7,150
10% $715$715
$7,151
$21,899
From
To$29,050Taxable
Amount
Rate
Tax$3,285
$7,151$29,050
$21,899 Tax15%
15% $3,285
$41,299
$29,051
$70,350
25%
$10,325
$–
$7,150
$7,150
10%25% $715
$41,299
$29,051
$70,350
$10,325
$72,175
$1,824
$511
$70,351
28%
$7,151
$21,899
15%28% $3,285$511
$72,175
$1,824
$70,351$29,050
$14,835
$41,299
$29,051 $70,350
25%
$10,325
$14,835
$70,351
$72,175
$1,824
28%
$511
12. Does Ray owe additional taxes or is he entitled to a refund?
$14,835
12. Does
Ray Ray
oweowe
additional
or isoforhe
to awithheld
refund?
Does
Ray
will
receive
ataxes
refund
$4,123:
Tax
$18,958 (#5), less tax owed $14,835 (#11).
12.
additional
taxes
isentitled
he entitled
to
a refund?
RayRay
will will
receive
a refund
of $4,060:
Tax Tax
withheld
$18,958
(#5),(#5),
lessless
tax owed
$14,898
(#11).
receive
a refund
of $4,060:
withheld
$18,958
tax owed
$14,898
(#11).
12. Does Ray owe additional taxes or is he entitled to a refund?
Ray will receive a refund of $4,060: Tax withheld $18,958 (#5), less tax owed $14,898 (#11).
8217 - WVSCPA.indd 3
7/12/2006 2:10:09 PM