2-2



2-2 Name : Date

Federal Income Taxes

Exercises

1. Edna Kropp's gross income for a year included salary, $12,400; commission, $27,750; interest,

$440. Her adjustments to income were payments to a retirement plan, $2,000, and a penalty for

withdrawing savings early from a time-deposit account, $126.

a. What was her gross income for the year?

$40,590

b. Find her adjusted gross income for the year.

$38,464

2. Find the amounts that are missing from this summary of an income tax return:

a. Gross income $42,685

b. Adjustments to income $3,670

c. Adjusted gross income $39,015

d. Deductions $8,978

e. Adjusted gross income less deductions $30,037

f. Exemptions (4 x $3,100) $12,400

g. Taxable income $17,637

3. Vince Bottolito's adjusted gross income on his federal tax return was $53,748. He claimed the

standard deduction of $4,850, and one exemption at $3,100. What was Vince's taxable income?

$45,798

4. The Valek's gross income last year was $64,890. They had adjustments to income totaling $3,829. Their deductions totaled $12,502, and they had four exemptions at $3,100 each. Find their taxable income.

$36,159

5. Ester Valdes earned $19,450 from wages, $4,000 from tips, and $1,467 in interest last year. She had adjustments to income of $2,157. She claimed the standard deduction of $4,850 and a personal exemption for herself of $3,100.

a. What was Ester's gross income?

$29,917

b. What was her taxable income?

$14,810

15

2010 Cengage Learning, All Rights Reserved, May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2-2

Name

Date

Federal Income Taxes

6. Find the tax for each exercise. Use the tax table to do these exercises.

| |Taxable Income |Filing status |Tax |

|a. |$13,585 |Single |$1,645 |

|b. |$13,800 |Married filing jointly |$1,383 |

|c. |$13,978 |Head of household |$1,536 |

|d. |$23,049 |Married filing separately |$3,063 |

|e. |$23,200 |Married filing jointly |$2,701 |

7. Nicki Wilson is single and has a taxable income of $23,780. Find her tax.

$3,175

8. Tim O'Hara's taxable income last year was $23,931.

a. If Tim is single, what was his tax last year?

$3,198

b. If Tim is married and filing separately, what was his tax last year?

$3,198

9. Mary Beth Sinclair's employer withheld $1,851 for taxes last year from her wages. On her tax return, Mary's taxable income was $13,587 and her filing status was "married filing separately."

a. Should Mary pay additional tax or receive a refund?

Refund

b. What is the amount of the payment or refund?

$206 Refund

10. The Kokorapolus's are married and are filing a joint tax return. Their gross income is $35,836. They are claiming $1,000 in adjustments to income. They are also claiming $8,906 in itemized deductions and four exemptions of $3,100 each. They have already paid a total of $2,245 in withholding taxes.

a. What was their actual tax?

b. They are entitled to a refund of what amount?

16

2010 Cengage Learning. AM Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2-2

Name

Date

Federal Income Taxes

Use the tax table to solve these exercises. Assume that every person was listed on his or her parents' return as a dependent and will claim the standard deduction rather than itemize.

11. Vera worked as a landscape gardener for 20 weeks last year to help earn money for school. She worked 15 hours each week at $8.25 an hour. Her employer deducted $11 each week for federal withholding taxes. Vera also earned $308.62 in interest on her savings account. Complete the form below:

|Wages | |

|Interest | |

|Adjusted Gross Income | |

|Less Deductions | |

|Taxable Income | |

|Tax from table | |

|Amount of Tax Withheld | |

|Refund Due | |

12. Victor earned $3,452 in wages last year as a part-time stock clerk and $216 in interest. His employer withheld $325 in federal income taxes from his wages.

a. What was Victor's taxable income?

b. How much will Victor receive as a refund from federal taxes?

13. Anna Mareno earned $6,119 working part-time last year. The total federal withholding taxes she paid were $480. Anna also earned $55 in interest. How much should she receive as a tax refund from the federal government?

17

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2-3

Name

Date

State and City Income Taxes

Exercises

1. Susan Wong's taxable income last year was $52,915. The income tax rate in her state is 2% of taxable income. What was Susan's tax last year?

2. Ira Rothman lives in Tennyson. Residents of Tennyson pay a city income tax of 2% of their taxable income per year. Find Rothman's tax on his taxable income of $34,800.

3. Use these state income tax rates to find the income tax for four taxpayers.

|Tax Rates |Taxpayer |Taxable Income |Income Tax |

|1% of the first $5,000 of taxable |a. RimBeale |$6,000.00 |$70 |

|income | | | |

|2% of the next $15,000 of taxable |b. Vi Wilder |$24,800.00 |$494 |

|income | | | |

|3% of the next $20,000 of taxable |c. Juan Pujols |$46,900.00 |$1,226 |

|income | | | |

|4% of all taxable income over |d. BevOlds |$98,310.00 |$3,282.40 |

|$40,000 | | | |

These are the state and city income tax rates in Thomasville.

City Tax Rates

State Tax Rates

Rate Taxable Income

2% First $5,000

3% Next $10,000

4% All over $15,000

Rate Taxable Income

1% First $15,000

2% All over $15,000

4. Rob Torre lives in Thomasville and has a taxable income of $31,500 for a year. a. What was Rob's state income tax for the year? b. What was Rob's city income tax? c. What was Rob's total state and city income tax?

a. $ 1,060 b. $480 c. $1,540

18

2-4 Name Date

Benefits and Job Expenses

Exercises

1. Louise Vjotza is paid $11.75 an hour for a 40-hour week. Her employer also provides these fringe benefits: yearly pension contributions, $1,955.20; health and accident insurance per year, $1,267; free parking, $1,200 per year; free tuition for the evening class she enrolled in, $1,500 per year. a. What is Louise's annual wage? b. What are her total yearly fringe benefits? c. What are her total yearly job benefits?

a. $24,440

b. $5,922.20

c. $30,362.20

2. Bea Williams is paid $2,883 a month. She estimates her yearly fringe benefits to be: pension contributions, $2,085; insurance, $645; free parking, $375; use of company car, $3,574. a. What is Bea's yearly pay? b. What are her total yearly fringe benefits? c. What are her total yearly job benefits?

a. $34,596

b. $6,679

c. $41,275

3. Goro Unoji's job pays him $14.75 an hour for a 40-hour week. He estimates his fringe benefits to be 32% of his yearly wages. His yearly job expenses are estimated to be: union dues, $575; uniforms, $650; commuting costs, $1,294. a. What is Goro's total annual pay? b. What is the amount of his fringe benefits per year? c. What are his total yearly job benefits? d. What are his total yearly job expenses? e. What are his net yearly job benefits?

a. $30,680

b. $9,817.60

c. $40,497.60

d. $2,519

e. $37,978.60

4. Julio Zapata has a job that pays $2,816 a month. He estimates that his fringe benefits are 28% of his annual wages. He also estimates that his yearly job expenses are special tools, $847; union dues, $970; commuting costs, $1,602; uniforms, $450. a. What is Julio's total annual pay? b. What is the amount of his annual fringe benefits? c. What are his total annual job benefits? d. What are his total annual job expenses? e. What are his net annual job benefits?

a. $33,792

b. $9,461.76

c. $43,253.76

d. $3,869

e. $39,384.76

2-4

Name

Date

Benefits and Job Expenses

5. Rita Falani has just graduated from school and is applying for two jobs. The first job pays $9.50 an hour for a 40-hour week and the second job pays $11.05 an hour for a 40-hour week. The fringe benefits are estimated to be 25% of the annual wage for the first job and 22% for the second. Yearly job expenses are estimated to be $1,480 for the first job and $1,796 for the second, a. Which job has the greater net yearly job benefits? b. How much greater?

Job 1 Job 2

Salary $19,760 Salary $22,984

Fringe $4,940 Fringe $5,056.48

Yrly Job Benefits 24,700 Yrly Job Benefits $28,040.48

Expenses $1,480 Expenses $1,796

Net Job Benefits $23,220 Net Job Benefits $26,244.48

Job 2 is better by $3,024.48

6. Consuela Lorenzo is comparing the four jobs below. Complete the form for her.

| |Job 1 |Job2 |Job 3 |Job 4 |

|Yearly Job Benefits | | | | |

|Hourly wages for 40-hour week |$8.95 |$8.50 |$7.89 |$9.50 |

|Fringe benefits |19 % of wages |19 % of wages |25 % of wages |18 % of wages |

|Yearly Job Expenses | | | | |

|Commuting costs |$256 |$419 |$899 |$1,206 |

|Uniforms |None |$560 |None |$380 |

|Union dues |$750 |None |$1,200 |None |

|Parking |$125 |$430 |$300 |$620 |

|Total Yearly | | | | |

|Wages |$18,616 |$17,680 |$16,411.20 |$19,760 |

|Fringe benefits |$3,537.04 |$3,359.20 |$4,102.60 |$3,556.80 |

|Job benefits |$22,153.04 |$21,039.2 |$20,514 |$23,316.80 |

|Job expenses |$1,131 |$1,409 |$2,399 |$2,206 |

|Net job benefits |$21,022.04 |$19,630.20 |$18,115 |$21,110.80 |

20

2-5 Name Date

Analyze Take Home Pay

Exercises

1. Rondo earns $3,750 per month. From those wages, $312 in federal withholding, $245.25 in Social Security, $59 in Medicare, $104 in state income taxes, and $23.75 in health insurance are deducted. Find the percentage of gross pay that Rondo takes home to the nearest percent.

= $3,750 – $312 – $245.25 – $59 – $104 – $23.75 = $3,006…..3,006/3,750 = .8016…80%

2. Lydia earns $540 per week. Each week, $32 is deducted for federal income taxes, $24.50 for FICA taxes, $29 for state taxes, and $74.50 for health insurance. Find the percentage of gross pay that Lydia takes home to the nearest percent.

= $540 – $32 – $24.50 = $29 = $74.50 = $380 / $540 = .7037….70%

3. George earns $400 per week. He was given a 2% raise. He is a single taxpayer who claims zero

withholding allowances. Federal income and FICA taxes are deducted from his wages. How much did his gross wages increase? How much did his net pay increase?

Currently With Raise

Salary = 400 Salary = 408

Income Tax = 46 Income Tax = 46

FICA = 30.60 FICA = 31.21

$400 - $46 - $30.60 = $323.40 $408 - $46 - $31.21 = $330.79

a difference of $7.39

4. Rashaunda earns $ 15 per hour and works 40 hours per week. She was given a 4% raise. She is a married taxpayer who claims 2 withholding allowances. Federal income, FICA, and a 2% state income tax are deducted from her pay. How much did her gross wages increase? How much did her net pay increase?

Currently With Raise

Salary = 600 Salary = 624

Income Tax = 33 Income Tax = 36

FICA = 45.90 FICA = 47.74

State Tax = 12 State Tax = 12.48

$600 - $33 - $45.90 – 12 = $509.10 $624 - $36 - $47.74 – 12.48 = $527.78

a difference of $18.68

5. Juan earns $625 per week. He is married and claims 3 withholding allowances. He pays $90 each week for childcare. If he participates in his employer's cafeteria plan and has the childcare expenses deducted from his wages before taxes, how much will he save in federal income and FICA tax each paycheck?

Currently With Pre-Tax Money Taken Out

Salary = 625 Salary = 535

Income Tax = 27 Income Tax = 18

FICA = 47.81 FICA = 40.93

$27 + 47.81 = $74.81 $18+ 40.93 = $58.93

a difference of $15.88

6. Paul is a married taxpayer and claims 2 withholding allowances. He earns $575 per week. He estimates that he will spend $50 each week in qualified expenses. If he participates in his employer's cafeteria plan and has the $50 per week deducted from his wages before taxes, how much will he save in one year of working in federal income and FICA taxes?

Currently With Pre-Tax Money Taken Out

Salary = 575 Salary = 525

Income Tax = 29 Income Tax = 24

FICA = 43.99 FICA = 40.16

$29 + 43.99 = $72.99 $24 + 40.16 = $64.16

$72.99 – $64.16 = $8.83…per week times 52 weeks = $459.16

7. Brittany earns $18 per hour and works 30 hours per week. She is single and claims 0 withholding

allowances. She pays $55 in health insurance, federal taxes, FICA tax, and a 4% state income tax. If she participates in her employer's cafeteria plan and has the $55 per week for health insurance, how much will it affect her net pay?

Currently With Pre-Tax Money Taken Out

Salary = 540 Salary = 485

Income Tax = 67 Income Tax = 58

FICA = 41.31 FICA = 37.10

State Tax = 21.60 State Tax = 19.40

Net Pay = $410.09 Net Pay = $370.50

$410.09 - $370.50 = $39.59

21

? 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Chapter 2 Name Date

Integrated Project 2

Directions Read through the entire project before you begin doing any work.

Introduction Twanya and Lewellyn Madison are married and have one son. Twanya works part-time and Lewellyn works full-time as salesclerks in the same department store.

Step One

The Madisons complete their joint federal income tax return for last year's income. Their gross income last year was $44,150. They had adjustments to income for an approved retirement plan of $2,870. They also itemized their deductions and found a total of $8,380. They claimed three exemptions (one each for Twanya, Lewellyn, and their son) at $3,100 each.

1. What is their taxable income?

$44,150 - $2,870 - $8,380 - $9,300 = $23,600

2. Using the tax table, what is the amount of their federal income tax?

$2,761.00

3. The Madisons' employer deducted $2,704 in federal withholding taxes during the year. Will the Madisons have to pay more taxes or will they receive a refund, and what is the amount?

$57 owed

Step Two

The Madisons also must complete a state income tax return and pay a tax on the amount of taxable income shown on their federal return.

4. Using the graduated tax rate schedule, what is the amount of their state income tax?

$704.00

5. The Madisons employer deducted $706 in state withholding taxes during the year. Will they have to pay more state income taxes or will they receive a refund, and what is the amount?

$2 refund

Step Three

The Madisons' son, Dwayne, earned $2,130 last summer to help with the cost of his schooling. He also earned $84 in interest through his savings account. His employer deducted $256 in federal and $78 in state withholding taxes. Dwayne needs to complete state and federal income tax returns in order to get refunds of the taxes that were withheld from his wages.

6. Using the tax table, find the amount of Dwayne's federal income tax. He claims the standard deduction, which is a minimum of $850 and a maximum of $5,450.

22

€5 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Chapter 2 Name Date

Integrated Project 2

7. How much federal income tax refund should Dwayne expect?

8. Using the graduated tax rate schedule, find the amount of Dwayne's state income tax.

9. How much state income tax refund should Dwayne expect?

Step Four

All the Madisons paid FICA taxes at 7.65% on their gross wages.

10. How much FICA taxes did the parents pay?

11. How much FICA taxes did Dwayne pay?

12. What total amount of state income, federal income, and FICA taxes did the parents pay?

13. What total amount of state income, federal income, and FICA taxes did Dwayne pay?

23

Q 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Chapter 2

Name

Date

Tax Tables, Withholding Tax

Single Persons—Weekly Payroll Period

(For Wages Paid in 2008}

If the wages are—

the number of withholding allowances claimed i

|At least |But less than |0 |

|350 |360 |38 |

|440 |450 |29 |22 |16 |

|{taxable | |And yo|u are | |

| | | |— | |

|income) is — | | | | |

|At 8ut |Single|Marrie|Marrie|Head |

| | |d |d | |

|least Jess | |filing|filing|ota |

|than | |jotnit|sepa- |house- |

| | |y | | |

| | | |rately|hold |

| |Vourtaxis— |

|13,000 | |

|13,000 13,050 |1,563 |1.303 |1,563 |1,394 |

|13,050 13,100 |1,570 |1.308 |1,570 |1,401 |

|13,100 13,150 |1,578 |1,313 |1,578 |1,409 |

|13,150 13,200 |1,585 |1,318 |1,585 |1,416 |

|13,200 13,250 |1.593 |1,323 |1,593 |1,424 |

|13,250 13,300 |1,600 |1.328 |1,800 |1.431 |

|13,300 13,350|1,608 |1,333 |1,608 |1,438 |

|13,350 !3,40D|1.615 |1,338 |1,615 |1,44$ |

|13,400 13,450|1,623 |1,343 |1,623 |1.4S4 |

|13,450 13,500|1.630 |1.348 |1,630 |1.461 |

|13,500 13,550|1,638 |1,353 | |1,469 |

|13,550 13,600|1,645 |1.358 |1,645 |1,476 |

|13,600 13,650|1,653 |1.363 |1,653 |1484 |

|13,850 13,700 |1,860 |1,368 |1,660 |1,491 |

|13,700 13,750 |1,666 |1.373 |1,668 |1.499 |

|13,750 13,800 |1,675 |1.378 |1,675 |1,506 |

|13,800 13,850 |1,683 |1.383 |1,683 |1.514 |

|13,850 13,900 |1.680 |1,388 |1,690 |1.521 |

|13,900 13,950 |1,698 |1.393 |1,698 |1.529 |

|13,950 14,000 |1.705 |1,398 |1,705 |1.536 |

|» line 43 | | | | |

|(taxable |And you sre — |

|tncome) to — | | | | |

|At Bui|Single|Maffie|Marrie|Head |

| | |d |d | |

|least Sess | | |filing|of a |

|than | |jointl|sepa- |house- |

| | |y | | |

| | | |rately|hold |

| | |Yourts|IX I* | |

| | | |— | |

|23,000 |

|23,000 83,050 |3,063 |2.671 |3.063 |2.894 |

|23,050 23,100 |3,070 |2.679 |3.070 |2.901 |

|23,100 23,150 |3,078 |2,686 |j 078 |2,909 |

|23,150 23,200 |3,085 |2,694 |3,085 |2,916 |

|23,200 23,250 |3,093 |2,701 |3.083 |2,924 |

|23,250 23,300 |3,100 |2,709 |3,100 |2,931 |

|23,300 23,350|3,108 |2.716 |3,108 |2,939 |

|23,350 23,400 |3,115 |2,724 |3,115 |2,946 |

|23,400 23,450|3,123 |2.731 |3.123 |2,954 |

|23,450 23,500|3,130 |2.739 |3.130 |2,961 |

|23,500 23,550 |3,138 |2,746 |3 138 |2,969 |

|23,550 23,600 |3,145 |2,754 |3,145 |2,976 |

|23,600 23,650|3,153 |2,761 |3.153 |2,984 |

|23,650 23,700|3,160 | |3.160 |2,991 |

|23,700 23.750|3,168 |2,776 |3,168 |2,999 |

|23,750 23,800 |3,175 |2,784 |3,175 |3,006 |

|23,800 23,850|3,183 |2.791 |3.183 |3.014 |

|23,850 23,900 |3,190 |2.799 |3.190 |3.021 |

|23.SOO 23,950 |3.198 |2,806 |3,198 |3,029 |

|23,950 24,000 |3,205 |2.814 |3,205 |3,038 |

|If line 43| | | | | |

|taxable income)|And you are— |

|is — | |

|At But |Single|Marnod|Marrie|Head of|

|leas! less | |filing|d Wing|a |

|lhan | |jointl|sepa- |house- |

| | |y | | |

| | | |' |rately|hold |

| | |Your lax Is — |

|0 |5 |0 |0 |0 |0 |

|5 |15 |1 |1 |1 |1 |

|15 |25 |2 |2 |2 |2 |

|25 |50 |4 |4 |4 |4 |

|50 |75 |6 |6 |• |8 |

|75 |100|S |9 |9 |9 |

|100 |125|11 |11 |n |11 |

|125 |150|14 |14 |14 |14 |

|150 |175|16 |16 |16 |16 |

|175 |200|19 |19 |19 |19 |

|200 |225|21 |21 |21 |21 |

|225 |250|24 |24 |24 |24 |

|250 |275|26 |X |26 |26 |

|275 |300|29 |29 |23 |29 |

|300 |325|31 |31 |31 |31 |

|325 |350|34 |34 |34 |34 |

|350 |375|36 |36 |36 |36 |

|375 |400|39 |39 |ja |39 |

|400 |425 |41 |41 |41 |

| |41 | | | |

|425 |4SO |44 |44 |44 |

| |44 | | | |

|450 |475 I |*e |46 |46 |

| |46 | | | |

|475 |500|49 |49 |48 |m |

|500 |525|51 |51 |51 |5! |

|525 |550|54 |54 |54 |54 |

|SSQ |575|56 |r,- |56 |Sfr |

|575 |600|59 |59 |59 |59 |

|600 |625 |61 |61 |61 |

| |61 | | | |

|62$ |6SO |04 |54 |64 |

| |64 | | | |

|650 |675 |86 |66 |66 |

| |66 | | | |

|675 |700|69 |69 |6s- |69 |

|700 |725|71 |7f |71 |71 |

Graduated Tax Rate Schedule

|For taxable income | | |

|Over — |But not over — |The tax is |

|$-0- |$8,000 |2% of taxable income |

|8,000 |16,000 |$160 plus 3% of taxable income over $8,000 |

|16,000 |24,000 |$400 plus 4% of taxable income over $16,000 |

|24,000 |32,000 |$720 plus 5% of taxable income over $24,000 |

|32,000 |40,000 |$1,120 plus 6% of taxable income over $32,000 |

|40,000 |48,000 |$1,600 plus 7% of taxable income over $40,000 |

|48,000 |56,000 |$2,160 plus 8% of taxable income over $48,000 |

|56,000 |64,000 |$2,800 plus 9% of taxable income over $56,000 |

|64,000 |72,000 |$3,520 plus 10% of taxable income over $64,000 |

© 2010 Cengage Learn

25

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