Page 133 - CalcBus_Flipbook

CH 14] Calculating Business 14-7

NET PAY
Up to this point you have been working on gross pay for an hourly, salary and
commission employee. Gross pay is the total earnings that an individual would receive with
no deductions taken. Net pay being Gross pay less the sum total of deductions, both
voluntary and involuntarily. Most Americans do not realize just who has access to their
income and the percentages which lower the pay one brings home. Taxes include Federal,
State and municipal income taxes, Medicare and Social Security – involuntary and
compulsory deductions as mandated by statute, which makes one think that the 13th
Amendment to the U.S. Constitution has been nullified. Voluntary contributions include the
contributions the employee makes for their retirement account in form of 401K accounts,
personal retirement accounts, along with set asides for payment of large purchases such as
mortgage loans, and Automobiles loans. Then there are voluntary contributions to
charitable organizations such as the Salvation Army, United Way, or their local church or
synagogue. After all deductions from gross pay are made, the amount of money left over
and received by the employee is their take-home pay or net pay.

Employees' Social Security and Medicare Deductions (FICA)
The Federal Insurance Contributions Act (FICA), which is also called the Social Security
Act, requires employers to withhold a calculated and limited percent of earnings on each
employee up to a maximum amount as fixed by Congress. Both the maximum earnings and
the percent are subject to change through legislation by Congress. Many people believe and
will often argue that Social Security is the taxpayer’s money. However the Social Security
Act of August 14, 1935 clearly indicates that Social Security is a tax, and once the
employer deducts from the tax payers’ gross wages their obligation into Social Security
along with the matching amount from their employer, it is NO LONGER THEIR MONEY, but
it is governments’. Congress has the power to write legislation requiring an older age in
order to receive the full benefit of Social Security taxes; to change the basis on which social
security is to be levied, to lower the amount of Social Security benefit paid out, and they
have. Congress re-set the minimum age for receiving full retirement benefits at 65. With
improvements in nutrition and the average American living longer Congress reset, again the
full retirement benefit age to 67. Many people use Social Security as their retirement plan. 14
Ida M. Fuller became the first person to receive an old-age monthly benefit check under
the Social Security law. Ida M. Fuller paid into the Social Security fund between 1937 and
1939 a total $24.75 on an income of $2,484. Her first check, dated January 31, 1940 was
for $22.54.
As congress does possess the authority to stipulate who can receive Social Security
benefits, they can and have enrolled foreign nationals to receive taxpayer funded benefits
through that office. Congress began this practice in December 1949 with an agreement for
the reciprocal payment of old age pensions for citizens of Denmark, Finland, Iceland,
Norway and Sweden went into effect.
Tax rates and the social security wage base limit. Social security and Medicare taxes
have different rates and only the social security tax has a wage base limit. The wage base
limit is the maximum wage subject to the tax for the year. The amount of Social Security
tax deducted from the employee’s earnings is calculated by multiplying the amount of
earnings in each paycheck up to a wage base limit of $132,900, and the current withholding
for the employee is at 6.2%. The law also requires the employer to pay a matching 6.2%
calculated on the employees’ gross pay, making the total Social Security tax (6.2% + 6.2% =)
12.4% based on the employees earnings.
There are no limits on earnings for the Medicare tax as it is deducted at a rate of 1.45%
of earnings matched by the employer at the same percentage rate. Thus the total Medicare
tax is (1.45% + 1.45% =) 2.9%.
The total Social Security tax combined with the Medicare tax that the employees’
deduction is calculated on is (12.4% + 2.9% =) 15.3%.
For employees earning in excess of $200,000 dollars, congress passed the “Additional
Medicare Tax Withholding” on wages at 0.9%. Thus with the employee/employer match a

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