Rather than a flat percentage rate, some states have what is known as a graduated income tax. This means that your state income tax is computed at a varying rate each time you reach a new income level. The higher your income, the greater your tax.
Example
Find the amount of state income tax deducted from each paycheck.
Carla Erpelding’s annual salary is $28,500. She is paid biweekly. Her personal exemptions total $1,500. The state income tax is calculated on the following graduated basis: 2.5 percent of the first $25,000 and 3.5 percent over $25,000.
- Find the taxable wages.
($28,500 – $1,500) = $27,000 - Find the annual tax withheld.
First $25,000 = ($25,000 x .025) = $625
Over $25,000 ($27,000 – $25,000) x .035 = $2,000 x .035 = $70
Annual Tax $625 + $70 = $695 - Find the tax per period.
Annual Tax ÷ Number of Pay Periods per Year = Tax Withheld per Pay Period
$695.00 ÷ 26 = $26.73 tax per pay period
Practice
Using the following graduated income tax rates, find the tax withheld per pay period.
1. Annual salary: $38,550; personal exemptions: $4,400; paid biweekly.
2. Annual salary: $47,425; personal exemptions: $3,000; paid weekly.
3. Annual salary: $29,149; personal exemptions: $2,200; paid monthly.
4. Annual salary: $24,872; personal exemptions: $1,500; paid semimonthly.
5. Mitchell Gomez is an auto mechanic. His annual gross salary is $35,500. He is married with 1 dependent, allowing him $3,700 in yearly personal exemptions. If his state income tax is based on the following graduated rate, how much is withheld from his semimonthly paycheck?
A. $46.49 B. $54.04 C. $92.98 D. $1,115.70
(source) – edited for correctness