Rice Business Report April Rice Business Report 2019 | Page 15

RICE BUSINESS REPORT APRIL 2019
How to Calculate Federal Payroll Taxes
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By Shanda Harper
The end result is that you pay federal taxes on a lower amount and hence, you
don't pay as much. Pre-tax amounts traditionally include some retirement sav-
ings plans, health related deductions like dental, and college savings plans to
name a few. Post-tax deductions are the remaining gross amount that taxes are
applied to once all of the pre-tax amounts have been subtracted.
What is the Federal Insurance Contributions Act (FICA)?
Other federal deductions that are paid by salaried and hourly employees at every level include
FICA, the Federal Insurance Contributions Act, which appears on each pay stub as two distinct
entries. The first entry represents the social security tax and the second entry is the Medicare tax, sometimes referred to as
OASDI. Both taxes are applied at a flat percentage rate with Social Security at 6.2% and the Medicare tax at 1.45%. Whereas a
cap exists on the amount of social security that can be withdrawn, no such limit is present for the medicare tax. The more
you earn, the more you pay
Understanding how to calculate your federal taxes is easy once you:
1. Identify the gross income amount
2. Distinguish between pre and post deductions that are being removed from your earnings.
3. Subtract the pre-tax amounts from your gross income.
4. Apply the federal tax rate, Medicare tax, and the Social Security tax to the gross income earned.
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