Paragraph five of your financial declaration is about the amount of taxes on your monthly income that you pay per month (or what the average monthly deduction from your income taxes represent, regardless of whether you pay taxes with each paycheck, or whether you pay monthly, quarterly, or yearly). You must define the amount that you pay for each kind of tax on an average monthly basis. The tax categories that you must identify the amount that you pay per month are:
- Federal Income Tax
- State Income Tax
- Municipal Income Tax
- FICA
- Medicare
You should find each of these amounts identified on your pay stub. If you don’t, you will need to speak with payroll, or an accountant, or whoever handles the books for your business to find out what your average monthly tax expense are. NOTE: FICA taxes are a combination of Social Security and Medicare taxes that equal 15.3% of your earnings. If you work for an employer, you are responsible for half of the total bill (7.65%), which includes a 6.2% Social Security tax and 1.45% Medicare tax on your earnings (FICA Tax: Rates, How It Works in 2024 – NerdWallet). So if your pay stub shows withholding of taxes for FICA but not for Medicare too, that’s because Medicare is part of the FICA withholdings.
- Add the total amount of tax that you pay for each category on average for the month and write that in the space provided in paragraph 5. If you are paid weekly and work the same number of hours each week and have not had a change in your pay rate during the year (and if have the income taxes discussed above withheld weekly), then you would need to multiply your weekly withholdings by 52 (i.e., 52 weeks in a year), then divide that sum by 12 (12 months in the year). If you are paid every two weeks, then you would multiply your bi-weekly withholdings by 26, then divide by 12 to get the monthly average.
If you are paid monthly, you would simply take the numbers for income tax withholdings right off your pay stub. NOTE: If you have had a change in the hours you work and/or in your rate of pay, you cannot average your old schedule or old pay rate because that would provide an incorrect figure.
If you are not paid monthly, then you will need to “show your math” and explain how you calculate your monthly income tax withholdings in the space provided for that explanation in paragraph 5.
I’ve stated it before, and I will state it again: make sure your financial declaration is complete and completely accurate. If you don’t know how to calculate your income tax withholding correctly, talk with someone who knows how to do it, so that you don’t miscalculate and then get accused of lying about your income.
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