Business Math 11 - Payroll (Calculating Take Home Pay with Dependents)

In the quiz on PAYROLL (An Introduction) you learned how to calculate a person’s take home pay when that person was single but not everyone is single.

When you get hired on at a job, you will be asked whether you are single or married and whether you have any children. Why would that be important? Because the number of people in your family that you are supporting will affect the amount of taxes (federal, state, Medicare) that are taken out and the amount of the medical insurance premium to cover the entire family. It does not change the amount a person chooses to have put into a retirement savings plan such as a 401K or the amount of percentage of social security tax and Medicare tax.

Because a person may have dependents, both the federal government and the state government give them a tax break. For example, say John is single and makes $800 a week. He pays $45 per week for medical insurance and 2% to his retirement plan (401K). His state tax is 4.95%. Let’s begin to work this problem.

$800.00 per week
$800.00 - $45.00 (health insurance premium) = $755.00
$800.00 x .02 = $16.00 (401K retirement deduction)
$755.00 - $16.00 = $739.00
$739.00 x .1 (federal tax) = $73.90
$739.00 x .0495 (state tax) = $36.5805 (rounded to $36.58)
$739.00 x .062 (social security tax) = $45.818 (rounded to $45.82)
$739.00 x .0145 (Medicare tax) = $10.7155 (rounded to $10.72)
$739.00 - $73.90 (federal tax) = $665.10
$665.10 - $36.58 (state tax) = $628.52
$628.52 - $45.82 (social security tax) = $582.70
$582.70 - $10.72 (Medicare tax) = $571.98

Solution: John’s take home pay each week is $571.98

That’s fine when John is single but now let’s say that John is married and has two children. This means that there are a total of 4 people in the family (John, his wife and 2 children). John’s weekly pay after deducting his health insurance premiums and his retirement fund is $739.00. Per the federal government, since John can claim 4 dependents (yes John can claim himself), his federal weekly taxes on $739.00 will be $32.00 and per the state government his weekly taxes will be $25.00. Now let’s see how the problem is worked with his dependent deductions.

$800.00 per week
$800.00 - $45.00 (health insurance premium) = $755.00
$800.00 x .02 = $16.00 (401K retirement deduction)
$755.00 - $16.00 = $739.00
$739.00 x .062 (social security tax) = $45.818 (rounded to $45.82)
$739.00 x .0145 (Medicare tax) = $10.7155 (rounded to $10.72)
$739.00 - $32.00 (federal tax) = $707.00
$707.00 - $25.00 (state tax) = $682.00
$682.00 - $45.82 (social security tax) = $636.18
$636.18 - $10.72 (Medicare tax) = $625.46

Solution: John’s take home pay each week with four dependents is $625.46

Notice that although John still makes the same gross pay, his take home pay will be different depending upon whether or not he is single and/or how many dependents he has. In this example, as married with children, John will take home an additional $53.48 per week or $213.92 per month.

For this quiz we will revisit the same individuals that were listed on the PAYROLL (An Introduction) quiz only this time they will be married or divorced and have dependents. So, for each person below, see if you can work out what their new take home pay will be having dependents.