Page 179 - Budgeting for Managers

Budgeting for Managers
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Do not try to do this yourself. The rules are very complicated,
they vary from state to state, they change frequently, and they
vary with each worker’s pay rate and number of family mem-
bers. We’re introducing the topic in this chapter only so that you
can understand what payroll will do, not so that you can try to
do it yourself.
Table 10-1 is an example of the information you might find
on a basic pay stub. If an employee receives a weekly gross
salary of $500 (that’s $26,000 per year), then a simplified pay-
check stub might look like what you see in Table 10-1.
Although the employee earned $500.00, the paycheck is only
for the net salary of $415.75. Where did the rest of the money
go? To payroll taxes, including withholding for income tax and
FICA (Federal Insurance Contributions Act), which comprises
Social Security and Medicare. On most pay stubs, there would
also be state deductions. In some areas, such as New York City,
there might be local deductions as well.

Gross Salary $500.00
W-2 Withholding $46.00
Medicare $7.25
Social Security $31.00
Total $84.25
Net Salary $415.75
Table 10-1. Basic salary

In addition to what shows on the paycheck, the company
also pays out money for each employee above the gross pay.
The company matches the $38.25 (7.65%) FICA contribution
for Social Security (6.2%) and Medicare (1.45%). (The compa-
ny also pays unemployment insurance—FUTA, Federal
Unemployment Tax Act—for each employee.) Above a certain
salary, currently $84,900, nothing is withheld for Social
Security, but the Medicare rate of 1.45% continues to apply.
(These figures are adjusted from time to time.)
The basic salary in Table 10-1 is just the beginning. There