Modern Business Math: Calculating Gross Pay, Deductions, Taxes (Units 4, Chapters 10-12) -, Study notes of Mathematics

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MTH 130

M0DERN BUSINESS MATHEMATICS

UNIT 4

CHAPTERS 10, 11 and 12

Brigitte Martineau UNIT 4 - Chapters 10, 11 and 12

10.1 – Gross Pay

Employee can be paid 3 different ways:

1. Time Basis
   How ___________ you work

a. Wage

b. Salary

2. Production Basis
   How __________ you produce

a. Piece rate

b. Commission

3. Combination of both
   Base salary + Commission

FORMULA: Gross Pay = Regular Time Pay + Overtime Pay

Assumptions:

• Regular time is up to ______ hours a week
• Overtime is paid at a rate of _____ times regular rate

Brigitte Martineau UNIT 4 - Chapters 10, 11 and 12

4. Hank Pierce works part time planting tress and shrubs for customers of a local nursery and receives $4.50 for each tree and $3.00 for each shrub planted. Last week he worked 20 hours and planted 12 trees and 62 shrubs. Find his gross pay.
5. Joe Manella is a car sales man. He is paid a commission of 5% of his net monthly sales of new cars and 3% of his net monthly sales of used cars. Last month he had net sales of $42,500 in new cars and $12,720 in used cars. What was his gross pay?
6. Wilma Case is a broker for a securities firm. She is paid a commission of 6% of the first $ worth of stock that she purchases for customers during a week, and time and one half this rate for all purchases over $3500. Find her gross pay for last week when she purchased $ worth of stock for customers.
7. Working for a secretarial service, Pam Evans is paid $8.00 per hour plus $0.35 per page typed. Find her gross pay for a week during which she worked 30 hours and typed 320 pages.

Brigitte Martineau UNIT 4 - Chapters 10, 11 and 12

10.2 – Deductions and Net Pay

What is Net Pay?

The _____________________ pay for an individual.

Found by finding the ________ of all deductions and subtracting this sum from the _________pay.

Net Pay = Gross Pay – Deductions

Deductions may include:

• Federal withholding tax
• FICA (social security) tax
• State and/or local withholding tax
• Disability and/or life insurance
• Medical Insurance
• Retirement funds
  • Savings plans
  • Loan repayments
  • Contributions
  • Dues
  • Garnished pay.

We will _____________ calculate federal withholding tax and FICA tax. Other deductions will be stated individually in all problems.

The Federal Withholding Tax

1. How to Calculate Adjusted Gross Pay?

Exemptions: An employee may claim an exemption for him/herself and one exemption for each person ___________________ on him/her for support. Table 10-2.1 (p 284) lists the values of exemptions for various payroll periods.

Adjusted Gross Pay = Gross Pay – Value of Exemptions

2. How to Calculate the Federal Withholding tax?

Table 10-2.2 (p 286) gives the rates for calculating the Federal withholding tax on the __________ _____________ _________________..

Brigitte Martineau UNIT 4 – Chapters 10, 11 and 12

EXAMPLES

1. Find the FICA tax if the gross pay is $1200 semimonthly
2. Find the FICA tax if the gross pay is $3500 per month

For the following problems, find the gross pay, total deductions, and net pay

3. Carl Harris works at a Burger & Fries Restaurant. He is paid $7.65 per hour and last week worked 30 hours. He is single and claims 0 exemptions, and has Federal and FICA tax withheld from his gross pay. Find his gross pay, total deductions and net pay.
   • Gross Pay
   • Adjusted Gross Pay
   • Federal Tax

• FICA

• Total of all deductions:
• Net Pay

Brigitte Martineau UNIT 4 – Chapters 10, 11 and 12

4. Jane Reid earns $18.50 per hour as a legal secretary. She is married, claims 0 exemptions, and last week worked 40 hours. From her pay is withheld Federal and FICA tax, 1.8% for group insurance, and $25 for a savings plan. Find her gross pay, total deductions and net pay.
   • Gross Pay
   • Adjusted Gross Pay
   • Federal Tax

• FICA

• Insurance
• Savings
• Total of all deductions:
• Net Pay

Brigitte Martineau UNIT 4 – Chapters 10, 11 and 12

11.1 Introduction

Federal Level State Level Local Level

Excise tax Estate and Gift tax Income tax

Import tax Income tax Licenses, Fees and Tolls

Income tax Licenses and Fees Property tax

Social Security tax Sales tax Sales tax

Unemployment tax Unemployment tax Tax on Public Utilities

Tax on Alcohol, Gasoline, and Tobacco

11.2 Sales and Excise Taxes.

What is a sale tax?

Formula : SALES TAX = Total Paid =

Or

Total Paid = Cost + Rate * Cost

What is an excise tax?

Brigitte Martineau UNIT 4 – Chapters 10, 11 and 12

2. Complete the following table

Basic Cost Tax Rate Tax Total Paid

a. $ 8.70 $0.

b. 6% $26.

c. $135.00 $145.

3. Sarah just had 32 square yards of carpeting installed in her home. The carpeting cost $24.95 per square yard installed, and is subject to a sales tax of 5%. Find the tax and the total amount paid.

Brigitte Martineau UNIT 4 – Chapters 10, 11 and 12

11.3 – Property Taxes

Property taxes are the main _____________ of_________________ for local governments.

Property taxes are used to pay for any _________________ provided by local governments.

Local government include: county, city, _____________, village, ______________.

The property you own is classified as ________ or _________________ property.

• Real property:
• Personal property:

Property taxes are usually paid on the _______________ value of your property.

What is an assessed value?

There is no property tax on government, ______________, educational and charitable real estate unless it is used to produce income.

In order for a local government to determine the property tax rate, they would divide the amount of money to be raised by the total assessed value of all property within the jurisdiction of the taxing unit.

Tax Rate =

The tax rate can be expressed in 3 different ways:

Brigitte Martineau UNIT 4 – Chapters 10, 11 and 12

Examples :

1. The Gatesville School District needs to raise $7,200,000 in property taxes to balance this year’s budget. Find the tax rate in dollars/$100 if the total assessed value of property in the district is $60,000,000.
2. Express a tax rate of 0.712562 in three different ways.
3. The Dorchester City School District is currently using a tax rate of 15% to collect property taxes of $12,000,000. What is the assessed value of property in the district?

An individual’s property tax is found by multiplying the tax rate times the assessed value of that individual’s property.

Property Tax =

Which ever one of the three tax rate forms is given, convert that rate to an equivalent __________

Examples:

Brigitte Martineau UNIT 4 – Chapters 10, 11 and 12

Since market values often change quickly and it is costly to have all property reassessed often, a piece of real estate is often assessed at a _________________ part of its true value.

The percent equivalent of this fractional part is known as the equalization rate.

Assessed Value =

Example:

7. Dave and Judy Karsten own a house valued at $85,000. The village in which they live uses an equalization rate of 40%, and last year imposed a property tax of $11/$100 of assessed valuation. Find the assessed value of their property and the amount of property tax which they paid last year.

It is sometimes useful to compare tax rates from one locality to another:

Actual tax rate = ________________________ rate * __________ rate

Example:

8. The town of Glenmont uses an equalization rate of 45% and a total property tax rate of $7.50/$100 of assessed valuation, while the town of Windom uses an equalization rate of 18% and a total property tax rate of $18.50/$100 of assessed valuation. Which town has the higher actual property tax rate?

Brigitte Martineau UNIT 4 – Chapters 10, 11 and 12

12.1 – Owner’s Insurance

Why do we need owner’s insurance?

What item can we insure?

Who can buy owner’s insurance?

There are 2 types of owner’s insurance:

1. Full coverage owner’s policy:
   • Protect against losses from damage caused by…
2. Comprehensive owner’s policy:
   • Same coverage as in type 1
   • Liability insurance for protection against losses resulting…..

i.

ii.

Brigitte Martineau UNIT 4 – Chapters 10, 11 and 12

3. Jill and Terry live in an apartment located in class B. What will be their annual premium for a $15,000 full coverage owner’s policy on their personal property if the apartment building is brick?

Short-term Insurance

Sometimes insurance is not buy for a full year but only for a few months. In that case the short-term premium will be a percent of the annual premium according to table 12-1.2.

Length of Policy Percent of Annual Premium Length of Policy Percent of Annual Premium 1 month 2 months 3 months 4 months 5 months 6 months

7 months 8 months 9 months 10 months 11 months 12 months

Examples:

4. If Kamden Industries in problem 2 had decided to purchase an eight month policy instead of a one year policy. What would such a policy have cost?
5. The McGuires will be moving from their frame apartment in class E to a house in two months. However, they want to protect their personal property for the two month period with a $25,000 full coverage owner’s policy. What will such a policy cost?

Brigitte Martineau UNIT 4 – Chapters 10, 11 and 12

How to cancel a policy?

You can cancel a policy before expiration date in two different ways:

1. Policy cancelled by the Insurance Company:
2. Policy cancelled by the owner:

Example :

6. If the Langs in problem 1 and purchased an annual policy, determine the charge and refund if the policy is cancelled after then months by a) the insurance company and B) the Langs.

Settlement

When property is damaged, a claim is filed and a settlement is given.

The settlement is always the ______________ amount between the amount of loss or the amount of insurance.

Examples:

7. A fire caused $28,000 damage to a house insured under a full coverage owner’s policy for $150,000. What settlement will the insurance company make?
8. What if the damages were worth $195,000?